How Could the Interest Rate Rise Effect Property?

By Jonathan Hudson | 3rd Nov 2017 | Blog | Government Regulation

Good news or bad news? Well mainly good I’d say if we look at the reality.

The average interest rate since 2000 is 2.75% and analysts are suggesting rates could go as high as 1% by 2020. Nothing too scary there. As consumers we have all got used to record breaking low interest rates. Some of the best years in property recently (2009-2014) were when the rate was as low as it is now (0.5% Bank of England base rate).

Whilst many won’t notice any change, most landlords may see changes to their mortgage payments, especially as many have interest only mortgages. This, along with tapered increased taxation which increases between now and 2020, makes it an interesting and challenging period for the buy-to-let market. The only caveat I have on this is if Landlords can ride the brewing storm and see it out to calmer waters then property investment longer term has never yet been disproven as a sure-fire winner.

Future rates

I don’t see another rise this year and whilst it will affect some, many will be on 2-5 year fixed rate terms and by this time the full impact of Brexit, both positive and any negatives, will already be known and then I would expect stability to return. Next year I can see a further rate rise at some point looking at the analysts’ predictions, however the UK is very resilient.

I met investors in the City on Wednesday night and sentiment is still strong for London property. Investors, family offices, overseas funds and individuals are still feasting on London and the south east and they appreciate the stability it offers. We have a proven governor of the Bank of England, at least for now, who will make sure we are on the right course. Yes, the odd wave may come to test us, but London property will make it through the other side.



Property short to medium term

As is happening now, property will always be transacted. At the moment transaction numbers are down, especially in central London because a lot of sellers don’t need to sell. Buyers are still out there and there are some savvy ones feasting on opportunities but they are few are far between.

Perhaps a boost from the chancellor on November 22nd may change that as stamp duty is a debilitating factor in most buyer’s intentions on moving. Property sales in the UK are 8-9% of GDP once you include all of the associated services around moving home, such as finance, builders, solicitors, removal firms - the list is endless. I am one of many families who would look to move if there was a more efficient way on significantly reducing stamp duty land tax. This would be a very welcome fillip for many and I guarantee the small 0.25% increase we’ve just witnessed would not make a jot of difference and people could get moving again!



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