The continued rise in interest rates by the Bank of England – the latest being to 1.25% – is, in my view, inflammatory nonsense. Unleashing joyous catastrophism could harm the housing market and therefore the UK economy. Lloyd, president of the independent non-profit organization Conveyancing
The Bank’s fifth straight rate hike – which was incredibly reluctant to raise rates for many years before – only drives inflation higher, while its dire predictions could become a self-fulfilling prophecy.
The real estate market is currently buoyant and shows no signs of slowing down, but these rapid rate hikes are enough to send shock waves through the market and undermine consumer confidence.
People move for many reasons and financial indicators rarely significantly deter a determined buyer or seller in the short term, but if we continue to drive the market down and the Bank of England continues to raise interest rates interest without valid reason, then motivation could be affected at all levels.
I think that while the transactional real estate market will not be affected in the short term and property prices will continue to rise, further action by the Bank of England could hurt the market.
Those who are committed to moving or buying a new property will most likely do so as they have the funds in place to continue and house prices continue to rise.
I agree with some economists that house prices are expected to rise nationally at a minimum of 6% for the rest of this year and more in pockets across the country where demand is high. and properties for sale are scarce, and that will continue to be the case in my view despite rising interest rates and rising inflation and household spending.
The Bank will be guilty of restricting the real estate market if the focus continues to be on bad and fake news that is not based on economic reality and sound economic principles that have been proven over time.
Another rate hike will create a vicious circle of higher household spending and higher inflation.
There has been a lot of speculation about rising fuel prices and how this will lead to inflation and the need for higher interest rates to prevent it, which is nonsense.
Raising household spending by raising interest rates raises inflation – period. Only savers, banks and building societies benefit from the increase in interest rates because they receive more interest on their savings and lend money at higher interest rates.
Instead, the Bank of England had to slow its series of interest hikes as inflation was to be expected after Covid-19.
There is a lot of excess money in the UK monetary system at the moment after the pandemic, with people unable to spend as they used to during the lockdown and Covid restrictions, leaving a lot of savings above the normal amount, and with the government pumping money into the system through the Bank of England to support the economy over the past two years.
So there would have always been a high inflation figure coming out of Covid as life returns to normal and people spend their savings, and this has been exacerbated by the war in Ukraine and rising oil prices. resulting energy. I expect this inflationary situation to last for the rest of this year and then start to normalize, without any need for undue concern.
New government policies to help first-time buyers and encourage up to 2.5 million tenants to buy their Housing Association properties at a discount through an extension of the Right to Buy scheme will help boost the housing market. lodging.
The government is also looking to ease rules around the 3% credit stretch test for mortgage borrowers this year, as well as consider insurance for higher LTV (loan to value) loans for first-time buyers. The proposed changes to leases could also breathe new life into the market, with thousands more being lured into buying apartments by the ability to truly own their homes instead of being tied down by restrictive leases.
I predict that the number of residential transactions will remain positive for the rest of this year and into 2023 and that the government will either have to stop the cost of living by reducing energy prices by reducing the fuel tax or live with it inflationary consequences. House prices will continue to rise as demand outstrips supply, loans are still readily available for movers and the UK economy remains strong.
*Lloyd Davies is President of the Conveyancing Foundation