This month, interest rates rose to a 13-year high of 1%, as the Bank of England increased the Bank Rate in a bid to tackle rising inflation. Further increases are expected over the next year, and some believe it will reach 3% during 2023. But how is this likely to affect property ownership in the coming year?
Mortgage repayments are set to increase as a result of the interest rise, but there are likely to be others reasons preventing prospective home owners from buying a property.
Affordability measures are in place to limit the amount of money you can borrow for a mortgage to ensure that people don’t borrow so much that they can’t absorb interest rate increases.
Up until the end of April, the buyer of an average home valued at £270,000 would have needed to earn just short of £39,500 a year to qualify for such a mortgage. However, if the Bank Rate were to reach 3% next year, the income required to buy the same property would increase to over £54,000, meaning the average home buyer would need an increase in income of 37% in one year.
The prolonged period of low mortgage rates has resulted in mortgage lenders offering fixed term, fixed rate deals to borrowers. Those coming to the end of these deals are likely to see their mortgage payments increase by half. Some people will be forced to sell their homes when they can no longer afford the mortgage repayments.
This rude awakening, after many years of reliably low borrowing costs and increased property ownership, is predicted to result in an increase in the number of home repossessions.
An increase in the number of properties on the market, at a time when those needing a mortgage to buy are in decline, is likely to have an affect on property values, and quick sale deals are likely to provide good opportunities for cash buyers to take advantage. However, in the long term it seems likely that the house price boom is at last coming to an end and that the market may begin to go into reverse – or at least stop the rampant growth of the last few years.