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There is no denying that the UK is going through a tough time at the moment economically. Inflation rates have now passed 10% which means that they are at their highest figure since 1982. In order to alleviate the rate of inflation, interest rates have also risen to 1%, which is marking the start of a potential period of recession. <br><br>As the housing market stands, thanks to a period of ultra-low interest rates, borrowing mortgages has become cheaper and this has inflated the housing bubble across the UK. As a result, homeownership is becoming more difficult, and people across the country contin
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Are you interested in buying property from probate or repossessions? If YES, Click here Contact Hello, Sign in Register Property Classifieds The Home Of UK Property Resources Home / Blog / Impact of Rising Interest Rate on UK’s Mortgage Market Back to search results Search Website Blog LIKE Print Posted on 12/09/2022 in For Buyers by Property Classifieds Press Keyword (Optional) Select Category Impact of Rising Interest Rate on UK’s Mortgage Market Search Now Share This Page
There is no denying that the UK is going through a tough time at the moment economically. Inflation rates have now passed 10% which means that they are at their highest figure since 1982. In order to alleviate the rate of inflation, interest rates have also risen to 1%, which is marking the start of a potential period of recession. As the housing market stands, thanks to a period of ultra-low interest rates, borrowing mortgages has become cheaper and this has inflated the housing bubble across the UK. As a result, homeownership is becoming more difficult, and people across the country continue to seek help from professionals when trying to purchase a property. Unsurprisingly, people who are currently looking for a mortgage and people who are looking to sell their property are looking around for answers on how this is likely to affect them and how higher interest rates might impact the property market throughout the country. What is Inflation? In order to talk properly about increased interest rates, we must first discuss what inflation is. In order to work out interest rates, you have the Office of National Statistics, which takes the time to look at roughly 700 products and about 18,000 prices for those products. In doing this they are able to calculate how much a basket of goods costs. Due to the pandemic, in the past couple of years, the Central Bank of England has released a large amount of money that the government has borrowed in order to fund the likes of the NHS, bounce back loans and multiple furlough schemes. Therefore, all of this borrowed money was put into the economy, but as this happens, the cost of goods devalues. This means that the price of goods goes up, leading to inflation which is expected to rise as high as 10%. A lot of us will have already felt the effects of this inflation as material goods, and food costs are climbing higher and higher. Not only this, but fuel prices and energy bills are becoming more expensive, and rent is going up too. This results in a lot of potential problems; however, in the housing market, inflation can actually be beneficial. What is the Interest Rate? The interest rate is what individuals pay on top of the money that they borrow. Not only that but it is what banks will pay individuals for using them as a means to save money. The interest rate is calculated by basing it on a percentage of the amount that you have decided to borrow or save throughout the year. For example, if you put £1000 into your savings and there was an interest rate of 1%, at the end of the year, you would have £1010. The UK has previously had a relatively low-interest rate following the credit crunch in 2008- 2009. The rates within the Bank of England even lowered at one point to be 0.5%. For people who had variable mortgages, it’s only recently that they will have stopped experiencing the benefits of lowered mortgage rates. This 0.5% rate is no longer sustainable, and as such, the Bank of England has made the unanimous decision to increase interest rates to 1%. Will the Interest Rate Stay at 1%? There is currently a debate between experts over whether or not the interest rate will stay at 1%. Historically, the Bank of England has always used higher interest rates as a means to manage inflation. As such, with inflation exceeding 10%, a lot of people expect interest rates to increase to as high as 5%. There are other experts who think that interest rates may well rise but not to as high as 5% and will more than likely remain quite low for a period. They believe this because the government borrowed money throughout the pandemic, which has contributed to the country’s national debt. As such, if interest rates continue to increase, it may well get to the point where the government can’t afford to meet the necessary interest payments due to their debt being too big. How Do Higher Interest Rates Affect the Mortgage Market? If someone has a variable mortgage, then the price of that mortgage is likely to increase significantly in the next five years. This means that property investors are going to receive less cash flow. If interest rates continue to increase, then we are more than likely going to see landlords stop making as much money on their properties, thanks to the fact that interest has eaten away at their cash flow. Landlords will have to keep dipping into their own pockets to
increase taxes each year. There are probably going to be a lot of property owners who will sell up due to the fact they won’t have the funds to keep reaching into their own pockets to pay tax. The Potential Benefits that Come with Inflation For the right individuals, there are benefits to be had with inflation in the housing market. This can occur if we as individuals have some kind of debt. Money is generally borrowed from housing investors in order to provide funding for property investment. You tend to find the buyer will get a 75% loan and then put a 25% deposit in. If you have a mortgage that isn’t interest only then you owe the remaining £150,000. If inflation rises then the spending power of that £150,000 has less impact. You tend to find that the value of a property doubles every ten years or so. How the Rise in Interest Rates Will Affect People Buying a Property Thanks to the rise in inflation as a result of the government borrowing money throughout the pandemic, we now find ourselves in a time where interest rates are the highest they have been for 40 years. This comes with both pros and cons to both the property and mortgage market. For investors who have a variable mortgage, they will likely have to start paying a lot more for their mortgage. This means they will need to reach into their own pocket to pay tax but could struggle to do so and end up selling. Individuals who have bought a fixed rate mortgage may benefit from this situation as the price of their property increases even though they continue to pay the same mortgage amount. If you are hoping to purchase a property but would like more information on what the current economic crisis could mean for the mortgage market, be sure to contact Property Classifieds. Our team of experts will be able to assist you with any and all queries that you may have. Sign up today We’ll keep you in the loop of all the new exciting opportunities. Join Our Newsletter - Today The Property Website That Allows You To Sell Your Home Fast To Investors For The Best Cash Price Website Support Partnerships Sell House Fast Property Investments FAQ Blog Terms of Use Privacy Policy Password Retrieval Contact Us Site Map Estate Agents - Advertise Properties FREE The result is a quick house sale for homeowners & property sourcing at it's best for investors. We can also recommend the best local estate agents if you want to put your property on the open market. © 2022 Property Classifieds Limited. All Rights Reserved.
