UK Housing Market Resilient Another Month as Inflation and Interest Rates Rise

UK Housing Market Resilient Another Month as Inflation and Interest Rates Rise

Home buyers were still showing interest in the UK housing market in August according to a recent report from Nationwide. The August data revealed a 0.8% increase over July. The increase was far more than the slight growth of 0.1% forecasted by some economists. It should be noted that the annual comparison of 12 months to July resulted in a 10.1% increase which was a 40 year high. There could be even other record highs due to increasing house prices once further data reports are released in the next months.

Despite the higher house prices and the higher interest rates, home buyers are still interested. It could be they see the rising interest rates set by the Bank of England to counter inflation as an ongoing situation that could push interest rates much higher. Rather than face the higher costly interest rates, they are choosing to buy now.

Many homeowners seek to move home prior to the holidays. It could be there were some homeowners that decided to take action earlier rather than face higher interest rates that are forecasted near the holidays. 

The housing market is forecasted to slow, the question is when. There will likely be a strong absence of first time buyers from the market at some level of higher rates

Affordability will be an issue as they deal with inflation, higher interest rates, high asking prices, low supply in starter homes within the housing market, and fewer first time buyer mortgage products in the lending market.

Inflation has been forecasted to reach 18% and the start of a four quarter recession could begin in the final quarter of this year.

Nationwide’s chief economist, remarked on the housing  market, “We expect the market to slow further as pressure on household budgets intensifies in the coming quarters.”

The current standard base interest rate set by the Bank of England’s Monetary Policy Committee (MPC) is 1.75%. There have been six increases in the rate set by the MPC at each consecutive meeting since December of last year. The then rate was 0.1%, which was an all-time historic low. In over 300 years, there had not been a lower base rate set by the Bank. Borrowers benefitted from the cheap borrowing due to the global pandemic. 

Once inflation began to take off at an alarming rate, the MPC took action and increased the rate to 0.25% in December 2021. An increase was expected, but many believed it would occur in the start of 2022, not at the close of last year.

Increases this year came at 0.25% until the August meeting when the base rate was increased by 0.50%. It was the highest increase in 27 years and could occur again at the September meeting which would take the base rate above 2.0% to 2.25%.

Home buyers seeking to escape paying higher interest rates are smart in taking the strategy to buy now, because more rate increases are warned to come.

Homeowners due for a remortgage because their current mortgage term has or will be ending are encouraged to seek a deal now rather than wait and pay on a higher interest rate. The interest rate is basically the cost of borrowing, by choosing to pay on a higher interest rate the borrower is choosing to pay more than necessary. 

Remortgaging could offer a lower interest rate than what would be available if the homeowners does not take a new deal and is moved to the lender’s standard variable rate (SVR). Some reports show the average SVR could be twice or more the rate that could be found with a remortgage.

The next MPC meeting is 15 September. There is not a scheduled meeting in October. Therefore, the next meeting could reveal an aggressive stance against inflation by the MPC and result in another 0.5% increase. 

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