Additional piece: The Impact of Interest Rate Hikes on the Housing Market
Introduction:
The recent base rate hike by the Bank of England has raised concerns among experts regarding its impact on the housing market. As the highest rate in almost 15 years, the increase is expected to have repercussions on homebuyers relying on mortgages. Real estate experts predict that this rate hike could lead to reduced purchasing power and confidence among potential buyers. However, there are also expectations that it could result in a shift towards more realistic housing prices. In this article, we will delve deeper into the potential consequences of the rate hike and explore how it could shape the housing market in the coming months.
The Effect on Homeowners and Buyers:
1. Reduced purchasing power: With the base rate increase, homeowners who rely on mortgages may find themselves with less purchasing power. The higher interest rates will lead to increased mortgage payments, which could limit their ability to afford properties and affect their buying decisions.
2. Decreased confidence: The rate hike could also result in reduced confidence among potential buyers. The uncertainty surrounding the economy and the housing market, coupled with higher borrowing costs, may make buyers hesitant to make significant financial commitments.
3. Increase in supply: Some experts believe that the rate increase could encourage homeowners to sell their properties. This increase in supply may benefit buyers by providing more options and potentially leading to more favorable prices. However, it could also put additional pressure on the rental market as individuals choose to sell rather than continue to rent out their properties.
The Shift Towards Realistic Prices:
1. Adjusting to inflation: One of the main reasons behind the base rate hike was to address stubbornly high inflation. Experts believe that this move by the Bank of England signifies a shift towards more realistic house prices. The inflated prices seen in recent years, particularly during the pandemic, may begin to stabilize as the focus shifts to more sustainable levels of inflation.
2. Impact on the housing market: Jeremy Leaf, a London-based real estate agent, suggests that the initial signs of recovery in the housing market have started to fade. Despite strong employment numbers, property buying confidence seems to be dependent on a decrease in core inflation over an extended period. This indicates that the housing market may experience a period of adjustment as it aligns with the new economic conditions.
The Opportunities and Challenges:
1. Increased bargaining power for buyers: The recent increase in home supply reported by agencies like Rightmove provides buyers with more room to negotiate and potentially secure deals at more favorable prices. The cooling market and the potential decrease in buying power among homeowners could enable buyers to have an upper hand in property transactions.
2. Impact on the rental market: While the increase in the supply of homes for sale may benefit buyers, it could potentially put additional pressure on the rental market. As homeowners decide to sell rather than rent out their properties, the demand for rental properties may rise, leading to increased competition among renters and potentially higher rental prices.
Conclusion:
The recent base rate hike by the Bank of England has sparked concerns about its impact on the housing market. While homeowners relying on mortgages may face challenges in terms of reduced purchasing power and confidence, the increase in supply could benefit potential buyers. This shift towards more realistic prices aligns with the need to address inflation and establish sustainable levels of inflation. As the housing market adjusts to the new economic conditions, buyers may have more bargaining power, while the rental market may face increased pressure. Overall, the rate hike paves the way for a period of transition in the housing market as it adapts to changing economic circumstances.
Summary:
The recent base rate hike by the Bank of England has raised concerns among real estate experts about its impact on the housing market. Homebuyers relying on mortgages may experience reduced purchasing power and confidence as a result. However, there is a potential shift towards more realistic prices in the housing market. The rate increase could lead to an increase in the supply of homes, providing buyers with more options but putting pressure on the rental market. The housing market appears to be undergoing a period of adjustment as it aligns with more sustainable levels of inflation. Overall, the rate hike signifies a transition in the market and presents both opportunities and challenges for homeowners and buyers alike.
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Home hunters who rely on a mortgage will potentially have less purchasing power and less confidence as a result of Thursday’s base rate hike, according to real estate experts.
As the Bank of England raised the base rate to 5%, the highest rate in almost 15 years, in a bid to ease stubbornly high inflation, experts said the housing market was undergoing a shift towards more “realistic” prices. “.
Some also suggested that the rate increase could push some homeowners to sell, which could help increase the supply of homes for buyers, but further pressure the rental market.
Jeremy Leaf, a northern London real estate agent and former residential president of the Royal Institution of Surveyors (Rics), said: “The apparent green shoots in the housing market earlier in the year have begun to fade, despite continued support from strong employment numbers.
“It looks like property buying confidence will only start to return when core inflation falls to more sustainable levels over a longer period.”
Matt Thompson, head of sales at London-based estate agency Chestertons, said: “We expect the rate increase to have an impact on over-leveraged buy-to-let investors whose increased mortgage payments could lead to their investment making a profit. limited or even a loss.
“This could result in some owners deciding to dispose of their assets.
“At this stage, we haven’t yet encountered homeowners who have been forced to sell, but if rates continue to rise, some homeowners may be forced to review the situation and weigh their options.
“At the same time, demand for London property remains strong, as the capital remains a hot spot for a variety of buyer demographics, including international buyers.”
Nathan Emerson, chief executive of real estate agent organization Propertymark, said: “It is undisputed that homeowners and pioneers will face the consequences of rising interest rates as borrowing costs rise.
“However, with this comes a new shift towards more realistic and sustainable house prices, below the peak seen during the pandemic.”
This latest rise could undoubtedly slow down the housing market as potential buyers scuttle away.
In better news for buyers, Emerson said recent increases in home supply seen by the agency would give buyers more room to bargain as well as more choice.
Earlier this week, Rightmove reported that the median price of a newly marketed home in Brittany fell £82 in June, marking the first monthly decline seen in 2023.
In other signs of a cooling market, the Office for National Statistics (ONS) also reported this week that the average UK house price in April this year was £7,000 below a recent peak in September 2022.
Kundan Bhaduri, director of London-based property developer and portfolio owner Kushman Group, said: “This latest rally could certainly slow down the property market as potential buyers scuttle away.”
Serious buyers and sellers continue to interact with each other, but with serious buyers and sellers potentially having even less buying power after today’s announcement, reasonable pricing of properties coming on the market is essential.
Gary Bush, financial adviser at Potters Bar-based MortgageShop.com, said: “I think the London and south-east property markets will grind to a halt now.”
Jason Tebb, CEO of property search website OnTheMarket.com, said: “The 13th rate increase in as many meetings will further exacerbate increasingly widespread affordability and negatively impact the confidence of the average property seeker. that depends on a mortgage. .”
He added: “Serious buyers and sellers continue to interact with each other, but with the former potentially having even less buying power after today’s announcement, sensible pricing of properties coming to market is essential.”
Rightmove Mortgage Expert matt smith He said: “If today’s news brings some reassurance to the markets, then we expect to see some stability return to the mortgage market, which will help those looking to get a mortgage this year to plan for the future.
For many people right now, higher interest rates lead them to evaluate their budgets and what they can afford, rather than put their plans on hold.
“Our real-time data still shows that more people are inquiring about real estate agents to see homes for sale than at this point in 2019.
“We’ve also seen a 53% increase in daily visits to our mortgage principle service in the last month, as more people seek to understand how much they can afford to borrow and pay on a mortgage.
“This tells us that for many people right now, higher interest rates are leading them to evaluate their budgets and what they can afford, rather than suspend their plans.”
https://www.standard.co.uk/business/money/what-does-the-bank-of-england-rate-hike-mean-for-the-housing-market-b1089567.html
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