Property Talk: Interest rates rise again — so are we near, or at, a peak?

The decision of the Bank of England to raise interest rates for the 12th time was expected. But is there more? This announcement ended a busy week that also saw the announcement of a 100 percent renter-only mortgage. Annabelle Dixon measures the temperature in the housing market.

Household porridge.

Yes, you read it right. Bank of England governor Andrew Bailey’s economic mess could be “just right,” writes The Wealth Club. We’re pretty sure they were referring to the Goldilocks reaction – that is, not too hot, not too cold – and not an oat-based breakfast staple, but their message is clear enough. It was just one of many reactions to the Bank of England’s decision this week to raise interest rates for the 12th consecutive time, by 0.25% to 4.5%.

The increase was widely expected – as is often the case with this kind of announcement – and by all accounts, it looks like it’s already factored into the equation. The city loves change like this: small, predictable, and almost unsurprising.

A “line in the sand” to ensure that “the cost of debt doesn’t create more problems than it tries to solve”

Markus Dixon, Director of UK Residential Research at JLL, explains: this means that most of this is already included in the fixed prices. rate the deals.

Still, the aggregate of 12 consecutive rate hikes is “significant,” warns Mark Harris, chief executive of mortgage broker SPF Private Clients. “The monthly payments of a borrower with a £250,000 mortgage on a tracker pegged to a 1% base rate will increase from £943 in December 2021… to £1,535 today,” he notes.

So can interest rates be at or near their peak? “The industry expects the next few months may draw a line in the sand for further rate hikes to ensure the cost of debt doesn’t create more of a problem than it tries to alleviate,” says Nick Leeming, chairman of Jackson-Stops. .

But back to that economic porridge: “The challenge facing Andrew Bailey is to keep the perfect bowl of economic porridge at the right temperature,” says Nicholas Hyatt, investment analyst at The Wealth Club. “Global economic momentum, not least the snarling bear of the US banking crisis, is unpredictable.” In other words, we are not necessarily out of the woods yet.

The overall picture of housing prices

The rate hike came just hours after the last monthly RICS report was released. Its authoritative member survey shows “the market continues to struggle,” weighed down by high borrowing costs and an uncertain economic outlook. However, most of its indicators, including price expectations, are improving from the lows reached at the end of last year.

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Elsewhere, data from Halifax released earlier this week show that after three months of gains, UK house prices fell 0.3%, or £1,000, in April. The lender adds that the averages are virtually unchanged from this period in 2022, with the annual rate down to 0.1% from 1.6% in March.

Commenting on the data, Jeremy Leaf, a north London real estate agent and former chairman of RICS, said: “Unlike other recent housing market surveys, these numbers show that we cannot be complacent about a recovery as cost of living and mortgage problems persist. that make buyers wary of long-term commitments if they don’t see real value.”

If you keep a close eye on the various house price indices, you will notice that they do not always match, as we explain in the Property Talk section. And it certainly can sometimes paint a confusing picture.

But Tom Bill, head of UK residential research at Knight Frank, explains: “You can argue about whether prices are going up or down, but the overall picture is that year-on-year growth is broadly flat, with deals clearly bottoming out in January.” .

Return of 100 percent mortgage

The release of Halifax house price data for April coincided with the launch of a new no-deposit mortgage. The Skipton Building Society has made a splash with a new 100 percent loan exclusively for tenants trying to save on a deposit.

Karen Neue, mortgage expert at Quilter, says: “This is the first time a product like this has been on the market since the financial crash, and it should help trapped renters find a property even if they don’t have collateral.”

Noah notes that even at higher interest rates, “those who have managed to save enough for a deposit are increasingly finding that they can earn the same monthly payments, if not less, by buying a property rather than renting it.”

However, it is likely to revive the no deposit debate, which the Guardian is looking at here.

“We have just witnessed the introduction of 100 percent mortgages for renters, which means they have no equity. We are now raising interest rates, putting pressure on affordability, which increases the downside risk for property prices, and also means that these 100 percent mortgages will have negative equity,” says David Hanna, chairman of the Cornerstone Tax group.

“Homeowners who have abandoned fixed-rate deals and gone straight to 5.5% mortgages will not be able to afford it. This will lead to a lot of seizures and forced sales, which is not good news. This will undermine confidence in the market.”

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