The interest rate hike and how this may impact the property market
We are living in uncertain times at the moment, economically, and it looks like things will not get better for a while. The Bank of England has stated that the UK will be in a recession by the end of this year. This has been reflected by an interest rate increase by the biggest amount that it has been for 27 years.
In doing this, this has meant that households already feeling the squeeze in their everyday bills is now faced with an even harder time. All due to the increase this will make to both mortgages and loans.
If we think about it from a property market perspective, what could the interest rate increase mean for those buying or selling their home?
The prices will level off
One likely outcome of higher interest rates is that the property market will start to level off. It is at an all-time high, and those who want to buy a property have limited supply for their demand.
Properties for sale often show a high level of interest, and many viewers and interested parties usually start a bidding war on a home. This pushes the price up higher than it usually would. Not a bad thing for sellers but ultimately frustrating for buyers.
With fewer people able to obtain or afford a mortgage, you are likely to see that they are less likely to buy a property, which will increase the supply for the lower demand.
A crash may come
It doesn’t look like a complete property crash is around the corner, but this doesn’t mean it won’t happen.
If it does come, it will have negative and positive implications depending on who you are and your position in the housing market. If you have recently bought one, you may end up in negative equity because the price you can sell your new home is much less than what you paid when the market was booming. Not only this, but those who are trying to sell a property may find that the price they can receive is lower than it would have been if they sold now.
Of course, a crash could be a good thing if you are ready to buy. It reduces the amount properties can sell for, so you can look at buying a house that is the perfect option within your price range rather than settling for something smaller than you may have wanted.
Renters will feel the pinch too
One area of the property that is likely to feel a pinch is those who rent. Landlords who pay their property on a mortgage basis will find that their monthly payments are increasing, which eats into their profits.
They may, in turn, raise their rental rates (if they can) or they could decide that they no longer want to have to try and balance the books and put their rental property up for sale. Neither is suitable for those who rent the property and live there.
The best thing that we can do is to sit and watch what is going to happen. We have all learnt of late that we don’t even know what is around the corner, so, until it happens, we will have to ride out this crash and hope that the UK recovers soon.
