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Will interest rate rises be enough to cool a heated property market?

As we reach the end of 2021, we can look back on a year which it’s safe to say, surprised everyone in the property industry.

Decisions locking down many parts of the economy at the start of the year created an enormous amount of pressure on many industries and the property world was expected to be no different. Fast forward 12 months and many of those concerns ended up being largely unfulfilled thanks to numerous measures applied and adopted to support the market. We had the job retention furlough scheme implemented saving numerous jobs; banks and solicitors setting up remote working operations; much hard work from estate agents to keep their doors open by establishing new ways of working; as well as a government stamp duty holiday incentive and wider economic stimuluses.

With all of these factors in play, we will end up with a year of purchase transaction volumes that is reported to be only surpassed by 2007’s pre-credit crunch levels. As banks have had more available funds to lend thanks to the government investment across the board and interest rates remaining at close to all-time lows (following this month’s increase from 0.1% to 0.25%), overall market activity exceeded everyone’s expectations. Many more people wanted to move into new properties to provide space to work from home, so demand became unprecedented.

Rightmove were recently quoted as saying the average time to sell a property fell from 67 days to 36 days due to this demand and with a reduced amount of replacement properties coming to the market, a significant rise in property prices became inevitable. According to both Halifax and Nationwide, house prices across the UK have increased on average by 10% in the last 12 months and roughly 15% since the pandemic started back in March 2020.

In addition to the purchase market’s resurgence, many clients who looked have looked at remortgaging have benefitted from the lender price war on rates, seeing mortgages available in large quantities below 1% for those with larger available equity balances and even for those with lower equity, many have reduced their monthly outgoings thanks to moving onto vastly improved rates.

So, what does all of this mean for 2022 and what are we expecting to see in the coming 12 months?

As has been widely reported, with inflation levels reaching higher levels than is widely accepted, the likelihood of further interest rate rises has gathered momentum, with many experts predicting further rate-rises in the first half of the year. As has been mentioned by the Governor of the Bank of England, changes will be small but incremental throughout the year with the view to temper inflationary pressures that we are now all experiencing.

The effect on mortgage rates is that current available products have already priced in future increases so though these available rates are no longer at their historic all-time lows, they still remain incredibly low compared with the long-term average. All of this means there remains a notable appeal to buy property as finance options are widely available at comparatively cheap prices.

Though the purchase market is likely to be more sedate than 2021 given the withdrawal of the government stamp duty incentive, there is still an expected to be an excess in demand due to many people still craving a move to a new property and a lack of available stock, so the expectation is house prices will continue to move upwards though at a notably slower pace than the last 12-18 months.

The remortgage market is also expected to see a dramatic rise in volume on both residential and buy to let properties, as many individuals took out 5-year fixed rates in 2016/17 when there was perceived value at that time for all concerned. With these rates expiring, many residential and rental property owners can look optimistically to the rates available today with a view to a reduction in their payable rate and therefore reduce their monthly mortgage costs.

Overall, the next 12 months look to be promising from a mortgage industry perspective given the perceived optimism across many areas of the industry. This optimism always has to be taken with a pinch of salt due to the fragilities of the wider economy and the on-going risk of new variants of coronavirus, however it remains a time when financial decisions will need to be made for many with rates expiring and those needing to move home.

At Chase de Vere Medical, we have a dedicated team of Mortgage experts, so if you have any questions about your own circumstances, we would be delighted to have a chat and talk you through what options are available to you. To book an appointment click here.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Content correct at the time of writing and is intended for general information only and should not be construed as advice.

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