T
totallyproperty
Administrator
Staff member
While politicians would prefer for UK base rates to remain at 0.5% ahead of next year's election, there is increasing pressure on the Bank of England to at least consider an increase in the short-term. The UK property market continues to go from strength to strength, leading to growing fears of a house price bubble, despite the fact that many economists have been trying to talk down the sector. So, what would happen to the UK property market if base rates did increase to around 3% by 2017?
Charlie Bean, the outgoing deputy governor of the Bank of England, has certainly set the cat amongst the pigeons with a suggestion that UK base rates could settle at 3% between 2017 and 2019. When you bear in mind they are only 0.5% at this point in time this would result in a significant increase in mortgage costs.
How would this impact the UK property market?
On the surface there is no doubt that an increase in base rates would be reflected in mortgage rates as commercial lenders seek to maintain their profit margins. Many households across the UK have already stretched their finances to climb aboard the property ladder and even the smallest tick up in base rates, let alone a return to levels around 3%, would certainly be a wake-up call and squeeze incomes yet further.
Any increase in UK base rate, resulting in higher mortgage rates, would impact short to medium term demand for UK property. In many ways this would at least help to deflate the housing bubble which is appearing in many areas of the UK although in reality markets such as London are overly influenced by overseas buyers who would be little impacted by an increase in UK base rates.
Are we really on the verge of a rise in base rates?
While the UK economy is recovering, in historic terms maybe not a strong recovery but in recent terms it is better than most around the world, the authorities would prefer to maintain base rates at relatively low levels. This would encourage spending, make finance more available and allow more money to be pumped into the economy as a whole. However, in many ways this situation is being abused by those looking to increase their exposure to the UK property market.
There are some experts who believe the authorities, having pushed the Help to Buy scheme, are making a difficult situation worse and over the weekend George Osborne refused to scale back funding for this particular scheme. It therefore seems inevitable that without an increase in UK base rates the property market will continue to go from strength to strength purely and simply because of excessive demand, fuelled by cheap finance, and relatively little supply in some areas of the country. Investors are in many ways forcing the hand of the Bank of England and the reality is that many people will suddenly find their mortgage payments have increased significantly, possibly above and beyond their immediate means.
Charlie Bean, the outgoing deputy governor of the Bank of England, has certainly set the cat amongst the pigeons with a suggestion that UK base rates could settle at 3% between 2017 and 2019. When you bear in mind they are only 0.5% at this point in time this would result in a significant increase in mortgage costs.
How would this impact the UK property market?
On the surface there is no doubt that an increase in base rates would be reflected in mortgage rates as commercial lenders seek to maintain their profit margins. Many households across the UK have already stretched their finances to climb aboard the property ladder and even the smallest tick up in base rates, let alone a return to levels around 3%, would certainly be a wake-up call and squeeze incomes yet further.
Any increase in UK base rate, resulting in higher mortgage rates, would impact short to medium term demand for UK property. In many ways this would at least help to deflate the housing bubble which is appearing in many areas of the UK although in reality markets such as London are overly influenced by overseas buyers who would be little impacted by an increase in UK base rates.
Are we really on the verge of a rise in base rates?
While the UK economy is recovering, in historic terms maybe not a strong recovery but in recent terms it is better than most around the world, the authorities would prefer to maintain base rates at relatively low levels. This would encourage spending, make finance more available and allow more money to be pumped into the economy as a whole. However, in many ways this situation is being abused by those looking to increase their exposure to the UK property market.
There are some experts who believe the authorities, having pushed the Help to Buy scheme, are making a difficult situation worse and over the weekend George Osborne refused to scale back funding for this particular scheme. It therefore seems inevitable that without an increase in UK base rates the property market will continue to go from strength to strength purely and simply because of excessive demand, fuelled by cheap finance, and relatively little supply in some areas of the country. Investors are in many ways forcing the hand of the Bank of England and the reality is that many people will suddenly find their mortgage payments have increased significantly, possibly above and beyond their immediate means.
