On The Up?

It’s been 10 years since the last interest rate rise in the UK.

Back then, the iPad hadn’t been unveiled, Pinterest didn’t exist and Twitter had only just had its first birthday.

It’s almost impossible to imagine life without these things now, and interest rates of 5.75% and Gordon Brown as the Prime Minister are now a distant memory.

Analysts believe that a rise in the Bank of England base rate is on the way, as a result of the latest inflation figures, which have been driven by increasing house prices. The government’s key inflation gauge, the Consumer Price Index, rose to a five year high of 3% in September – a rise that was attributed mainly to the fall in the pound. Raising rates, should, in theory, help control inflation by dampening demand in the economy.

“Food prices and a range of transport costs helped to push up inflation in September. These effects were partly offset by clothing prices that rose less strongly than this time last year. While oil and fuel costs continued to rise, overall, the rates of inflation for raw materials and goods leaving factories were little changed in September. House price growth edged upwards in the year to August, despite growth in London continuing to ease” says the Office for National Statistics’ head of inflation Mike Prestwood.

But what could a rise in interest rates mean for you as a potential seller?

Regional data for England and Wales demonstrates that the North West experienced the greatest increase in average property price over the last 12 months, with a rise of 6.5%. The property market is also showing signs of buoyancy with prices holding up well due to a shortage of stock.

We have found that there is much conflicting speculation out there, and until the interest rate rise occurs, it is difficult to establish the impact it will have. Our research has shown us that whilst the threat of an interest rate rise may put off some potential house buyers, rumours of a potential Stamp Duty reduction for first-time-buyers should encourage demand. Either way, it will take some time for any measures taken to filter down into prices.

In the near term, an impending interest rate rise could even give reluctant prospective purchasers a push. “The calls for an interest rate rise will soon turn to a clamour, and in the short term this is likely to spur wavering would-be buyers into action,” said Jonathan Hopper, managing director of Garrington Property Finders.

There is also the potential for an initial spike in prices. Paul Smith, chief executive of Haart estate agents, warned that a rate rise in the near future “could mean a further surge in prices, as buyers fight over limited stock in the run-up to Christmas, and look to lock down a cheap fixed rate mortgage before the Bank of England steps in”.

Traditionally though, higher interest rates mean lower house prices, and many experts predict that this will remain the case.

Higher interest rates mean higher mortgage rates, which buyers do not want, especially with economists warning of a possible personal debt crisis. In order to avoid a jump in house prices, the Bank of England is set to raise interest rates gradually, with economists forecasting two possible hikes during 2018.

Also, the September RICS UK Residential Market Survey showed buyers are already taking a more cautious approach as they consider the implications of shifting interest rate expectations. This contributed to a more subdued London housing market last month, according to the survey.

While it may be hard to make a firm conclusion about the long-term implications of a rate rise, it will certainly be an unfamiliar feeling to see rates rise, although discussions about lifting them have rumbled on throughout much of this 10 year period of record lows.

In the meantime, we continue to watch and listen with interest, while we wait to see what November brings.