Home » Head to Head: Will a base rate rise slow the housing market?

Head to Head: Will a base rate rise slow the housing market?

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Dominik-Lipnicki-2019-cutout-alpha-chanelDominik Lipnicki

Unlike during the 2008/09 economic crash, the UK housing market has remained strong throughout the pandemic, and I really cannot see that changing over the coming year.

Inflation is clearly a dark cloud on the horizon and most agree that the Bank of England (BoE) will be raising its base rate over the coming months to deal with that issue.

During his Budget speech, we have seen Rishi Sunak giving the BoE a green light to what it needs to do when it comes to controlling inflation. While that might ring alarm bells with some, what the BoE is very unlikely to do is increase the base rate substantially and risk a recession.

Many borrowers have taken low rates for granted and few remember the super-high rates of the 90s

Inflation is predicted to rise and then dip again. It is debatable therefore just how much of an impact on inflation a rise will have. Indeed, even if we see a return of the pre-pandemic 0.75% base rate, for most of us that would still mean very low mortgage rates.

It is true to say that we are still seeing lenders fighting over the same clients, and looking at lending criteria rather than record low rates would be a priority.

The furlough scheme has ensured that as we’ve opened up our economy, unemployment has remained low, which has further added to a strong housing market.

Many have changed the way they work and I for one believe that some of these changes are here to stay. That may well mean that people’s physical location in relation to their usual place of work is less important as more of us work from home, at least some of the time.

The BoE is very unlikely to increase the base rate substantially and risk a recession

The lockdowns have really shown how important quality living space, both inside and outside, really is and all of these are real factors in demand. As I see it, the main issue with the housing market is the lack of supply rather than reduced demand.

What could have an impact in the longer term is if, as some predict, we see a BoE base rate at 3%+, a rate that we haven’t seen in 13 years. Without doubt many borrowers have taken very low rates for granted and few remember the super-high rates of the 90s, which I hope we never have to experience again.

Dominik Lipnicki is director at Your Mortgage Decisions

Joe ArnoldJoe Arnold

The average cost of a UK home increased by £25,000 in the last 12 months — that’s nearly as much as the average UK salary. This is according to the latest figures from the Office for National Statistics, which found that the average cost of a home in the UK is now £264,000, while the average price in London is £526,000.

It could be argued that the temporary break in stamp duty land tax stimulated some of this price inflation, but the underlying driver remains the imbalance between supply and demand.

It is unlikely that changes to the base rate will be anything other than slow and measured

The Royal Institution of Chartered Surveyors (Rics) has said that the lack of available stock is creating competition among buyers and that the imbalance between supply and demand remains the most striking theme in its residential market survey.

So will a rising base rate slow down the housing market? I’d say that is unlikely. Any significant change in the cost of mortgages will, of course, make it harder for some customers to maintain larger mortgages, but the first thing to consider is that a significant part of the market doesn’t even rely on mortgage funding as there continues to be many cash buyers.

Second, it is unlikely that changes to the base rate will be anything other than slow and measured. After all, these are the lowest interest rates on record, so a 0.25% rate rise is hardly going to change anything and rates will remain historically cheap. So combined with the underlying principles of supply and demand, any impact on the housing market is only likely to be turning down the heat, rather than slowing it down.

A significant part of the market doesn’t even rely on mortgage funding

So how can mortgage brokers continue to make the most of the opportunities in the market? I often present to brokers at large industry events and smaller workshops run by Arnold & Baldwin, and a consistent theme I find is that there continues to be some uncertainty about the surveying and valuation processes, and how they can influence the progress of an application and, ultimately, a broker’s conversions.

My tip would be to tackle that uncertainty head on by establishing a collaborative working relationship with a surveying firm. Not only does this give you the opportunity to refer clients to someone that you like and trust to help them protect their investment, it also opens up a more open dialogue and access to market information.

Joe Arnold is managing director at Arnold & Baldwin Chartered Surveyors

Finopulse

Disclaimer: This story is auto-aggregated by a computer program and has not been created or edited by Finopulse.
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