What do rising interest rates mean for your property purchase?

The economy is changing, and it’s no wonder interest rates are fluctuating – with Prime Ministers and Chancellors dipping in and out of Downing Street every few weeks, paired with our long-term recovery after the Coronavirus pandemic and global factors such as the war in Ukraine, it’s no shock that our economy is experiencing the impacts of such turbulence. But is this economic uncertainty as bad as we think, and how much will it affect you finding your dream home?

It’s no secret that the media in many quarters gain from economic fearmongering – after all, it guarantees clicks and newspaper purchases – but there has undoubtedly been some exaggeration and more than a hint of uncertainty. In this piece, Centrick will be guiding you through everything you need to know about interest rates, inflation and trends to make the best decision for you.

Back to normality?

Although there has been an undeniable spike in interest rates over the past few months, this is far from abnormal. Only within the context of the last decade do interest rates seem disproportionately high: prior to 2008, interest rates were very rarely below 5%, which was considered normal. What’s more, the United Kingdom’s interest rates are far from abnormal when compared to other countries – at the time of writing, the Bank of England’s base interest rate sit at 2.25%, whereas the United States and Canada’s base rates sit at 3.25%. Ultimately, from both a historical and global perspective, our interest rates fall into the category of normal.

Furthermore, since the recent appointment of Rishi Sunak as Prime Minister, aspects of the economy have begun to recover. Just days after Sunak’s appointment, the market began to stabilise, as evidenced by lenders cutting interest rates by half a percentage point – a huge sign of faith in the incumbent government, and a drastic change from the rates present during Liz Truss’ tenure that has become synonymous with instability. Centrick Chairman James Ackrill noted that the change was “a hugely positive sign for those looking to purchase their first home, their next home, or expand their portfolio. After a tumultuous few months, it is relieving for both our clients and staff to see the market begin to stabilise so quickly”. Group Sales and Lettings Director, Andy Butts, continued “the market, despite the obvious uncertainty remains relatively buoyant with Sales continuing to be agreed in all areas. There is a definite caution that we’d always encourage prospective buyers and sellers to exercise in any market conditions but providing agents use their experience and professionalism when bringing properties to the market and taking offers to seller we expect transactions to continue in 2022 and 2023″.

What do rising interest rates mean for me?

This isn’t to say that rising interest rates will have no impact on the property market. According to Money Saving Expert, alterations to the base rate encourages lenders to increase loan rates, which can have both long and short-term impacts to your mortgage depending on which type you have. For example, tracker and variable mortgages can experience immediate, short-term price hikes or reductions, in line with the Bank of England’s base rate. However, fixed rate mortgages will not experience the same immediate-term fluctuations, and will instead change when your fixed term ends, at which point you will be shifted onto a standard variable rate of around 5-6%, or be given options to move onto a new fixed rate. If mortgage rates rise, though, you can anticipate this percentage to be higher.

We spoke to Marc Dueck from ME Financial Services, who also said that we must dispel the myth that has been rife in the media of mortgage offers being ‘pulled’ due to rising interest rates. He said:

“A mortgage offer, unlike an agreement in principle, is a legally binding document. A formal mortgage offer will usually be valid for 3-6 months depending on your lender, so if you already have one of these in place, the rate you have been offered will be the interest rate you pay on completion, as long as you complete before your deadline.”

This means that if you have an offer in place, there’s no reason why you can’t continue your search for your dream home with your original budget, you might even make some additional savings due to the Stamp Duty reductions

Securing a mortgage that works for you

So, which mortgage works best for you and your needs?

Fixed rate mortgages provide you with security, allowing you to effectively plan your finances as you know precisely how much you will pay off each month. However, variable rate mortgages react to the economy, meaning that you may be able to pay less month-by-month if the economy becomes increasingly buoyant, which can save you money in the long-term. Ultimately, the ideal mortgage for you depends upon the level of financial flexibility you have.

Still confused about which mortgage works best for you? Speak to our highly recommended mortgage brokers at ME Financial, who can provide expert advice on the best option for your situation and provide access to the latest rates and products.

Inflation – what is it and how does it impact the property market?

In short, inflation is the measurable increase in the price of goods and services: at the time of writing, the current rate of inflation is 10.1%.

Inflation may result in immediate house price increases in the short-term in line with other goods and services, especially in the New Homes market as the price of building materials and labour also rises. This rapid property price growth may eventually lead to a price correction, which the UK has experienced several times over the past century. However, it’s important to remember that the property market is cyclical, and over the long-term UK house prices have typically doubled every 15 years, even with these price corrections. Property is considered one of the most reliable asset classes for this reason: whilst the value of cash savings decreases thanks to inflation, and the stock market remains volatile during economic uncertainty, property typically remains resilient. As such, developing a diversified buy-to-let portfolio can be a way to protect your finances from suffering the impacts of inflation.

Riding the wave of rising interest rates

Those still dubious about the state of the economy and how it will impact their property purchases will rejoice at the property market’s cyclical nature, meaning that rates and prices naturally go up and down. As such, you will likely still make money on your property in the long term as the market recovers.

The most important step of mitigating any financial turmoil is to ensure that you can afford to move house even with rising costs – consider stamp duty, solicitor costs and moving costs as well as mortgages and interest rates to find your true budget. Thankfully for purchasers, the re-implementation of stamp duty cuts this autumn will surely increase many homebuyers’ and investors’ budgets.

Ready to make the most of the property market?

Centrick has the experience and partnerships to help you get sold and find your dream home, whatever the market. With the help of our partners at ME Financial, we are able to provide our clients with the most accurate information and best advice to ensure their property journey is as stress-free and budget-friendly as possible. For more information on our range of property services, and how we can help you find a property that suits your budget, contact us using the form below: