Well, it’s been another interesting week in the housing market hasn’t it? Never a dull moment!
It’s been reported today (13 October 2022) that mortgage interest rates have hit a new average of 6.3%. Now, this sounds alarming, unless you know to pick beneath the surface of the headline.
Last week, I attended a conference in London run by Keller Williams, where we were treated to some fascinating insights from Robert Elder, from the Bank of England. There were some key pieces of information directly from the horse’s mouth, so to speak, and I’m happy to share these with you now.
Key point #1: Inflation rate is high
The Bank of England’s job is to keep a lid on inflation (currently running at 10%). In real terms, this means that to enjoy the same things you did a year ago, you need to spend 10% more this year.
About half of this has been caused by the rise in gas prices due to Russia restricting supply to Europe. The other half has been driven by a ‘hot’ labour market, meaning that unemployment is low, demand for goods and services is high, and this pushes up prices for wages and materials.
Key point #2: Interest rates must rise
The goal for the Bank of England is to keep inflation rates around 2%, which is proving a difficult task at the moment, however one of the tools that the Bank of England have at their disposal is to raise interest rates.
Interest rates are nearly always above the rate of inflation, but to raise up to something like 12% would be a huge shock to anyone who has a large amount of borrowing, such as a mortgage, so they are adjusting it slowly.
Rob likened it to the thermostat in your home. If you’re too cold, you turn it up a bit, wait for a while and see how it feels, and if it’s still too cold you nudge it up a bit more.
At present, the Bank of England has set the interest rate at 2.25% but plenty of forecasters are predicting around 6% to be the norm in 2023.
Key point #3: Mortgage lenders are speculating
So, if the official BofE interest rate is only 2.25%, why are mortgage rates over 6%? It’s simple: Speculation. Mortgage lenders are unsure how to price their deals at the moment, so are hedging their bets by going a bit higher above the interest rate than they normally would.
However, as with all headlines there is more to it than initially meets the eye. There are still cheaper deals to be had, with Halifax still offering a rate of 4.49% on a 5 year fixed deal. This is correct at the time of writing and no doubt will change again very soon.
So what does this mean for homeowners?
Things are changing quickly, and my advice is that if you have to remortgage within the next 6 months, start a conversation with your mortgage broker now. Don’t have a broker? In my opinion, a broker is a MUST. They have access to all the deals currently on the market and are able to give you impartial advice on your own situation.
For example, let’s say your mortgage isn’t due to mature until one year from now, your broker will be able to do the sums based on your personal situation and work out if paying an early exit fee may work out better for you in the long run.
If you don’t have a mortgage broker, I’m happy to recommend someone. Contact me and I’ll send you details.
And what does this mean for house prices?
The housing market is always driven by one main factor – affordability. When interest rates were low, borrowing was cheap, and it forced house prices higher as people were easily able to borrow more.
Now that borrowing is more expensive, it will have an affect on what people are able to affordably offer on buying their next home. So my prediction is that yes, we will see a correction in house prices. This isn’t a bad thing. Last year in my hometown Horsham, a 4 bed detached house rose 16.8% (July 2021 – July 2022). This kind of increase isn’t sustainable in the long run, anyone can see that.
So should we all panic and run around like headless chickens? Absolutely not. Because guess what? Even if your home’s value declines, that house you’re hoping to move to will be doing the same thing. It’s all relative, and a home is only worth what someone is prepared (and able) to pay for it.
Home ownership is a marathon, not a sprint, and with careful financial planning and a focus on ensuring that the move is affordable for you, it’s one of the most rewarding races you can run.
Hayley Georgiou is an independent real estate agent based in Horsham, West Sussex. She has over 15 years’ experience in sales & marketing, and offers property sales, lettings, and a home buying service. Her agency is built on the values of honesty, transparency and excellent communication every step of the way.