In April 2022, interest rates rose from 0.75% to 1%. This 0.25% jump has taken interest rates to the highest level seen for 13 years. Whilst the increase is no surprise, it’s certainly a sign of things to come in the coming months. If the economy continues as it is, we expect the base rate could sit at somewhere between 2-2.5% by the end of the year as banks try to balance inflation.
The Bank of England has announced that it hopes to the slow the rate at which prices are increasing however, has warned that this inflation could continue to rise by over 10% at the end of 2022. This rise is something we have not experienced for 40 years, last seen in 1982.
For the property industry, these rates will have a huge impact. Where possible, first-time buyers should be looking to get on the property ladder as soon as they can before mortgage rates start increasing and their hard-earned money doesn’t go quite as far. Although this could mean a first-time buyer may have to move forward more quickly, and potentially compromise in some areas, in the long run the benefits of purchasing before the rates increase further, will far outweigh these small negatives.
We have already started to see some evidence of down valuations as lenders start to limit and mitigate their risk. This is a clear sign that the banks understand the rapid growth in house prices is not sustainable and are putting in provisions to put the brakes on and actively soften the upwards curve as inflation continues to rise. Down valuing doesn’t have to be a deal breaker when it comes to a property purchase/sale. On these occasions, there are many options including topping up the amount or discussing a compromise on the sale/purchase price to be more in line with the valuation fee.
What this means is that the more inflated prices we have seen so far this year are likely to come down, but it doesn’t address the bigger issue for the market which is the lack of supply. It’s these shortages that normally push prices up with more competition in the market, regardless of the interest rate rise, and a trend that we expect to see continue over the coming months.