By Helena Marston
The Bank of England has just raised interest rates to three per cent, the highest in 14 years. And this might not be the end of it.
Newspapers rightly point to the challenges of such rapidly rising borrowing costs for those looking to buy or re-mortgage at the same time as so many people are struggling with a cost-of-living crisis.
Some commentators have suggested this will lead to a house price correction – note I said correction, not crash. It might surprise you that I think this would be a very good thing.
The market for good homes has been constrained for a prolonged period which, along with an ultra-low interest rate environment, has fuelled an unhealthy level of price rises – up 73 per cent over the past decade according to HM Land Registry.
That’s not sustainable, healthy or fair for those who have worked hard to save for a deposit only to find home ownership slipping further and further beyond their grasp.
Falls of 20 per cent, even 30 per cent, are being trumpeted by the gloomiest of forecasters. More realistic are suggestions of a drop of five per cent to 10 per cent– a correction, not a crash. Look back at the data and you’ll see UK house prices have never fallen by more than 20 per cent. And for homes in the right location, with good transport links and good schools, we might not see prices shift at all. I don’t dispute demand may fall, but it will still far outweigh supply.
My advice to those who have been looking to buy in recent months is simple: don’t give up. And find a good mortgage broker.
I know many people who have tried to time the market, to wait for prices to fall only to regret it as they continued to defy gravity and rise.
We need to change the way we think about property. Don’t only see your property as an investment, think about it as your home. It’s the place you live. And while values may be uncertain or even fluctuating now, in the long term they have always risen. As long as you don’t overstretch yourself, you are likely to be better off buying today than waiting for tomorrow.
In the current environment, we also need to think about the outlook for rents, too. Increasing demands on landlords are taking rental stock out of the market when we so desperately need it, with the consequence being that rents are rising rapidly. I don’t see any sign of that slowing. So, while mortgage rates might be rising, don’t ignore the fact that your rent is likely to as well.
Crucially, make sure you use a mortgage broker to get the best deal that’s right for you. I’m still amazed at how many people simply turn to their local high street bank for a mortgage. Now more than ever, it’s crucial to go to a mortgage broker and one who has the widest spread of mortgages on offer. You will have to pay a small fee, but the savings should be huge.
Of course I recognise that for many, even with the best will in the world, the option to buy today is still far out of reach. And until we see a step change in residential supply and a realisation of the Government’s new build targets, we’ll remain in a residential permacrisis.
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