London’s first-time buyers are being warned that they face a double squeeze. This is because mortgages are getting more expensive and property prices are continuing to rise. Variable rate mortgages make up about a fifth (or?300 billion) of all mortgage debt. “More generally, although mortgage rates have been rising since late 2021, they remain extremely low by historical standards. Although there has been some movement since December’s hike it is not much. Lenders start the year with new goals, eager to increase market share. Borrowers have had a temporary reprieve. “Rates will undoubtedly rise in the coming months. The amount will depend on whether the hike today has the necessary dampening effect on the inflation. However, it is highly likely that we will see more base rates rises throughout the year. This will change the pricing of mortgages and those who don’t act quickly will regret it. “North London estate agent Jeremy Leaf stated that a rate increase seemed almost inevitable given recent increases in inflation, with more to come as energy costs continue to rise. “An immediate impact on housing activity is unlikely, considering the large number of homeowners with fixed-rate mortgages. More concerning is the shock likely felt by first-time buyers, who are vital to the long-term health and viability of the market. “Today’s increase in interest rates will likely be the first of many, and this future direction for interest rates will inevitably compromise affordability and deter some from taking the first step on the ladder. It will also dampen house price growth. “Will the interest rates rise in London affect house prices?” Alex Lyle, director at Antony Roberts’ Richmond estate agency, stated that “lack of supply” is a bigger issue in the wider housing market. Buyers are not concerned about rising prices or mortgage rate increases, but the lack of choice. “Many Richmond buyers buy for cash, so it doesn’t matter what happens to interest rates. Buyers who require a mortgage will appreciate the fact that rates start from a low base. Mortgage buyers who need a mortgage will appreciate the fact that rates are starting from a low base.
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Wesley Davidson, the founder of Fox Davidson, stated that “this latest interest rate rise will pile on more misery to homeowners, or at minimum those on standard variable rates as their mortgage costs rise.” The proposed national insurance hike and the forthcoming energy price rises will cause a real squeeze in income for 2022. “Will you get a mortgage?” Lucian Cook, head residential research at Savills, stated that today’s rate rise will signal to homebuyers that they can expect higher rates and that it may happen sooner than expected. For buyers with higher leverage, the question of whether or not the Bank of England will ease back on mortgage regulation is more pressing. “The mortgage market is still very competitive, and the margins of lenders have tightened over time due to the pandemic. We could see today’s rate hike passed on to borrowers fully. “We stand behind our forecasts of an average 3.5 percent increase in house prices across the UK this year. This likely weighted towards half the year.
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