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The base rate explained: what does today’s UK interest rate rise mean for your mortgage and the property market?

The base rate explained: what does today’s UK interest rate rise mean for your mortgage and the property market? 

Interest rates in the UK have risen for the first rise in a decade, stretching the budgets of millions of homeowners, after the Bank of England’s monetary policy committee voted to raise interest rates back up to 0.5 per cent, from a historic low of 0.25 per cent.

With 43 per cent of homeowners on variable or tracker mortgages, it means millions of households will see their monthly expenditure increase in the run-up to Christmas.

This comes at the same time as many UK households are experiencing a real terms wage freeze, while being heavily indebted with both mortgages, credit cards and other loans.

“Household budgets are under pressure from the fact that wages have not been rising as fast as the cost of living,” said Nationwide’s chief economist, Robert Gardner. “Indeed, in real terms (i.e. after adjusting for inflation) wage rates are still at levels prevailing in 2005.”

How much will a rise add to your mortgage?

For borrowers with a tracker mortgage linked directly to the BOE rate, for every £50,000 of borrowing on a 20-year term mortgage, an interest rate rise of 0.25% will see their payment increase by £6 per month*.

*Indicative figure, calculations based on £50,000 borrowed over a 20-year term, with mortgage interest rates changing from 2% to 2.25%.

Source: Mortgage Advice Bureau (Chloe Lewis)

So, what does this mean for the property market and what is the advice for home owners?

MORTGAGE ADVICE

Big lenders, including Barclays, Natwest, Nationwide, Halifax and Santander, withdrew some of their lowest rate mortgage offers once a base rate rise seemed likely.

“A rate rise will undoubtedly have a further impact on product availability,” says Chloe Lewis, business principal for the Mortgage Advice Bureau.

“For those who have been idling on a standard variable rate, it really could be time to consider remortgaging, as these deals are still close to the lowest-ever levels.

“Likewise, for those nearing the end of their current fixed-rate mortgage deal, or who are considering new borrowing, it may pay to start the process sooner rather than later in order to secure a competitive deal.”

PROPERTY MARKET FORECAST

The forecast from Countrywide estate agents is that house prices will rise by 2.5 per cent in London and four per cent across Britain during 2018.

“Although there is talk of a ‘London slowdown’, the capital’s property market has changed pace following last year’s stamp duty changes and Brexit referendum,” says Countrywide’s research and analytics director, Johnny Morris.

Uncertainty is causing buyers to be more cautious than in recent years, meaning they are now more price sensitive when it comes to moving home and are taking longer to make decisions.

The mandatory stress testing of mortgage affordability has also put a ceiling on the loan-to-value amounts buyers are able to secure.

“The up side is that the rise comes as the economy is doing better, so it suggests increased confidence in future employment and that confidence will probably feed into the market as well,” says Morris.

SHOULD YOU DELAY BUYING?

The general consensus is that there’s little to be gained in waiting to buy and that buyers should look for a property with a view to keeping it for the mid- to long-term.

“The combination of mortgage regulation and interest rate rises will act as a drag on house price growth, even once we have clarity over the Brexit process, so buyers will need to hold for longer to amortise the costs of moving home,” says Savills head of residential research, Lucian Cook.

SELLERS MUST PRICE REALISTICALLY

There is similar advice for sellers. Owners who have made large gains during their period of ownership are unlikely to see prices rise significantly over the next year or two, according to Cook.

He says: “Sellers will need to price for today’s market, reflecting greater buyer caution given the backdrop of economic and political uncertainty.”

To read the full articles please visit https://www.homesandproperty.co.uk/mortgages/what-does-todays-uk-interest-rate-rise-mean-for-your-mortgage-and-the-property-market-a115176.html