Bank of England raise Interest Rate for only Second Time in a Decade

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What does this mean to the average person and how will it affect the housing market?

The Bank of England has today announced that for only the second time in the last ten years, they are increasing the Base Rate. This is changing from 0.5% to 0.75%. This has been done because the Interest Rate Committee believe that after a few ‘wobbles’ in the first quarter of the year the economy is growing again and is expected to grow at 0.4% per quarter for the rest of the year.

The pick-up is being supported by household spending, which the Bank said had been "erratic" earlier in the year.

It is also believes the recent series of store closures on the High Street does not reflect a lack of appetite for shopping.

In its Quarterly Inflation Report, the Bank said: "Although in the past year the number of retail closures have increased and retail footfall has fallen, contacts of the Bank's agents suggest that mainly reflects shifts in consumer demand to online stores and from goods to services."

However, how does this affect the housing market and mortgages?

Initially, we believe there will be little or only small effect on current home owners, as there are many more fixed rate mortgages in place than variable rate ones. Therefore, although the bank has increased the rate today, many mortgage holders on a fixed rate may not see a change for years. Those on variable rates, will probably see a very quick change, but as an example on a £150,000 variable mortgage, a rise to 0.75% is likely to increase the annual cost by £224 or just over £18 per month, or £4.31 per week.

Some people will be concerned that this could affect demand, however, although The Bank of England has expressed some concerns in the past about the housing market and did highlight a slowdown in the housing market in the UK, but believe this is primarily London focused, where there has been a significant fall in mortgage completions since 2016, however, a lot of this is to do with the eyewatering Stamp Duty on properties of £1Million plus, along with the change in Capital Gains tax, meaning that it is no longer so tax efficient for foreign nationals to own property in the UK and in particular London.

In the North Somerset and Weston-super-Mare area, thankfully there is not a high level of house transactions at the £1million plus mark and certainly the demand and affordability for the majority of buyers we are working with is not likely to be affected by this relatively small change.

Into the future, the bank is saying that they expect interest rates to rise slowly and the news from the markets, is that they are only expecting one or perhaps two rate rises of 0.25% between now and the end of 2020.

All in all this rate rise has been forecast for some time, but the economy and local housing market looks set to take this well within its stride and this should hopefully lead to a stable economy in general and housing market specifically.

If you would like to know more about our thoughts on the market in general, or if you would like a FREE and NO OBLIGATION valuation of your home, please call us on 01934 512537,

Sue Iles and Neil Jenkin