Bank Of England increase rates, but is it really that bad?

By June 23, 2023No Comments

The Bank of England has today announced an increase to its base rate to 5% in an attempt to bring down inflation. But will this impact the property market as much as we think? Throughout the 90’s and early 2000’s interest rates of 5-8% were a thing of the norm, yet we saw a booming housing market.

Our director Oliver Conoley had the following comments:

“Whilst a rise in the Bank of England base rate is unwelcome, we are quite confident this won’t have as much of an impact on the property market and values as the media have – in recent times – predicted. Our enquiries remain high in numbers, and we have in recent weeks achieved record prices for prices per square foot in Manchester City Centre. 

Industry experts are also not expecting widespread repossessions, this is due to much stricter lending criteria in recent years meaning banks have factored in rate hikes to their affordability calculations, ensuring large buffers in earnings to affordability ratios. Some predict a maximum of 20% of disposable income will be sacrificed according to the Institute of Fiscal Studies.

As for the buy to let industry, Zoopla’s recent report showing more than 13% rises in rents across some of the UK’s major cities ensures that investors will continue to achieve solid return on investments. Although they may need to pay more interest on their mortgage if their fixed term is expiring or on a new purchase, they will easily cover this in increased rents. Furthermore, short term rental services are proving an increasingly popular route amongst our landlords bolstering returns to as much as 12% annual return on investments. 

There is a likelihood of a minor brief dip whilst homebuyers and home sellers adjust to the news, and most likely because motivated sellers that need to move will tweak asking prices accordingly to ensure a sale. However, there is still a widespread housing shortage issue in the UK, so supply and demand constraints will prevail, therefore we can expect to see a recovery towards the back end of this year.”

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