In simple terms, a rise in interest rates will mean that borrowing becomes more expensive for those buying property, whether they’re purchasing for their own use or as a buy-to-let investment.
However, the real picture is more complex with the mortgage market already shifting, even on the rumour of an imminent rate rise. Barclays, Halifax, Lloyds and Nationwide have already announced interest rate increases for many of their mortgage products, in anticipation of the Monetary Policy Committee’s decision.
Dale Anderson, Managing Director, Fabrik Invest, says: “There’s a clear temptation for first-time buyers and investors to take up the opportunity of low borrowing rates while they still can and lock in a rate for the next three to five years. However, doing so isn’t risk-free. Property prices may cool down slightly once the interest rate goes up, which means buyers could potentially get a better deal if they wait. It’s a tough call.”
So, will the market cool? According to the team at Fabrik Invest, it’s not out of the question, but a slowdown seems, on the whole, unlikely. The UK has a fundamental and sustained shortage of homes – a shortage that looks set to worsen as the price of building increases sharply due to inflation.
Dale adds: “Bricks and mortar have always been deemed a safe mid-to-long-term investment in the UK and demand continues to outstrip supply. I believe any interest rate increases will be very gradual, so won’t affect the market too much, and interest rates will still remain low. That means it makes sense to get on the property ladder or invest in assets that will be cash-flow positive as soon as possible.”
Property provides a solid alternative to low-performing pensions and bank savings rates. However, any substantial increase in borrowing rates could have a potentially negative impact on the property market. More expensive borrowing and falling house prices are, of course, a situation that both first-time buyers and investors are keen to avoid.
Dale concludes: “It’s definitely a balancing act for anyone looking to take out a mortgage right now. Lenders have already shown which way they expect the Monetary Policy Committee to vote. All things considered, I think locking in a rate for the next three to five years as soon as possible could be the best course of action.”
