Base rate changes – what does it mean for the property market?

Date Published 24 August 2018

Fresh off the latest interest rate rise, this month`s local property news seeks to explore the potential impact on the property market.

The rate rise timing was poor for the property market. The bigger issue has been Brexit and the complete and utter shambolic mess the Government appear to be making of it (hopefully the writer`s opinion isn`t too strong here…). Dire warnings about the impact a ‘no deal hard Brexit` would have on the economy and property market, echoed by the Bank of England Governor, Mark Carney, has reduced confidence in the property market and led to lower levels of transactions and buyers.

Markets need confidence to function correctly and I would suggest this is the larger factor here, rather than rate rises. Low rates have certainly buoyed the housing market over the last few years, but the last set of rising rates also coincided with a strong boom in property prices. The key is to whether people can afford the rate rise and mortgages are still historically low. You can lock in a 10-year fixed mortgage for 2.49% (correct at time of going to press), which is still lower than wage inflation of 2.9%. That difference gives me confidence that there will be positives for property, even if there is a slight bit of current turbulence.

What about the Brexit risk? To be quite frank, a hard Brexit would be very damaging for the property market, and pretty much every market out there. Otherwise, assuming common sense prevails, then we would likely see some strong support for the market with low unemployment and increasing wages providing a support mechanism to more than compensate a tiny rate rise.

Paul Davies

Director @Home Estates and Mortgage Consultant