The Interest Rate Rise & The Property Market

News at Stirling Ackroyd | 29/09/2017

Following the first Bank of England (BOE) interest rate rise in a decade, adding 0.25% to make a 0.5% base rate, there has been much speculation around how the rise will affect not only home buyers but also buy-to-let landlords and subsequently, the rental market.

With over 40% of homeowners on a variable rate or tracker mortgage, there is a large proportion of the market that will experience an increase in their monthly outgoings, which equates to approx. £50-80 rise on a £400,000 mortgage, depending on their existing deal.

New buyers will also face higher outgoings with many of the best value mortgage deals having been withdrawn from the market before the BOE announcement. Bricks and mortar, however, are still a good investment and will remain so for the foreseeable future with many mortgage deals available under 2%. A far cry from the heady pre-recession interest rates.

The property market has many different opinions on this topic that swing from both sides of the pendulum. We asked our department heads for their take on the rise:

George Davey – Head of Residential Sales

“The interest rate rise is something that has been expected for some time, buyers in the current market are very savvy and there are few who will be taken by surprise with this and fewer who will really be affected. The mentality of your average buyer is very different than it has been historically, people don’t tend to overstretch themselves as they have in the past, so factoring in such a small change should be very straightforward for most.

With the average increase in monthly mortgage price being minimum I don’t expect this to have any real impact in appetite for property and I think the market will continue much the same as it has been over the last few months, especially in London. The cost of borrowing is still historically very low and there are some great opportunities for buyers, so for me the outlook is positive”.

Joseph Robinson – Head of Client Services

“For the past decade we have experienced a 0.25% base rate, this rise should not be a surprise to anyone. It has been on the horizon for some time and given that only a few of the mortgage products have been taken off of the shelves, means that banks have been expecting it. The rise has already been priced into the products available before and the cost of borrowing money is still cheap.

In London, your average person has an outstanding mortgage of around £250,000. With the current interest rate rise, this breaks down to an extra £30 a month of payment, this is less than a cup of coffee a day. It’s very easy for the media to send panic through the market, but we must not forget that the economy is performing much better, unemployment is low and this will continue to improve, even with Brexit looming. Confidence in the market will naturally improve in line with economy and this interest rate rise is there to curb inflation, which will keep us on track to steadily improve as an economy and continue to grow the property market”

Brett Sullings – Director - Stirling Ackroyd Commercial

“The impact of the interest rate rise in the Commercial property market is even smaller than in the Residential market. For this side of the market, it is other governmental matters such as Brexit uncertainty or policies aimed at the construction side of the market that will have a bigger effect on Commercial property”.

For more information on residential purchases you can ask us today or email our Commercial team