The Bank of England’s decision to raise interest rates from 0.5% to 0.75% last week in response to inflationary pressures was widely predicted.
With inflation hitting a 30-year high of 5.5%, interest rates are expected to rise even further in the coming months, which largely explains the rise in rates. mortgages.
The last time the rate was this high was in March 2020, before the pandemic triggered an extended stamp duty holiday, a squeeze in supply and double-digit growth in property prices .
It’s premature to say that prices will now slow considerably, but a 12.6% annual increase recorded by Nationwide in February does not seem to have a long life, especially when taking into account the cost compression of life, according to James Cleland, head of Knight Frank’s country business.
“If a good property comes at a good price, it will sell under competition,” he said. “However, it’s no secret that there are more headwinds and buyers have become a bit more realistic. For owners considering putting their property on the market, this means the next few months represent a window of opportunity as demand remains so high.
In another sign that single-digit house price growth could be on the horizon, borrowers are becoming more cautious due to higher inflation.
Simon Gammon, head of Knight Frank Finance, reports that lenders have withdrawn their best rates in recent weeks, raising borrowing costs.
“People are starting to push each other less,” he said. “They ask how much they can afford to repay per month rather than how much they can borrow overall.”
Banks themselves will become more cautious as higher spending trickles down to bills.
“Some people have started to reduce the amount of their loans, but in six months they may not have a choice,” Gammon added.
The cautious mood matches research released last week by the Federation of Home Builders, which found buyers are increasingly concerned about the energy performance of the property they are buying due to soaring costs. fuel.
“The pandemic has brought about a period of runaway property price growth,” said Tom Bill, head of UK residential research at Knight Frank. “Demand is fierce and mortgage rates are low, but time is running out for buyers and sellers.”