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House price fear as mortgage rates rise – ‘winter of discontent’ for property market | Personal Finance | Finance


As food and energy prices go through the roof, the Bank of England will come under ever greater pressure to increase interest rates to curb inflation. Yesterday’s figures showing unemployment falling and job vacancies hitting a record high have raised the stakes. The BoE could make the first rate hike as soon as December, with more to follow in 2021.

If inflation continues to climb, that could finally bring the era of record low mortgage rates to a close.

Higher borrowing costs could bring today’s sky-high property prices back down to earth, while existing homeowners may struggle to service their mortgage repayments.

Experts are urging homeowners to lock into a long-term fixed-rate mortgage while interest rates remain at record lows.

Scott Taylor-Barr of Carl Summers Financial Services said the end of the stamp duty holiday and furlough, rising living costs and tax and National Insurance all threaten the housing market. “Add in the usual Christmas slowdown and we can expect the property market to lose some of the wind from its sails.”

Benefit cuts and moves to make students pay back loans at a lower threshold may also hit growth, said Lewis Shaw, founder of Shaw Financial Services. “We have all the ingredients for a nasty winter of discontent.”

UK house prices rose 7.4 percent in the year to September, latest figures from Halifax show. This added another £4,400 to the average property price, which now stands at a record £267,587.

Halifax said the post-pandemic “race for space” has driven growth, along with improving labour market prospects and low borrowing costs.

That may soon change with BoE policy maker Michael Saunders warning base rates may rise due to higher prices.

READ MORE: House prices ‘as expensive as ever’ – expert shares key analysis

Markets are pricing in a base rate increase in February, and have half-priced in an increase as early as December.

Fawad Razaqzada, market analyst at ThinkMarkets, said inflation is proving to be hotter than the BoE expected and likely to persist longer. “If we see wages data catch up with inflation, then the BoE will have even less reason to keep current interest rate policy.”

Miles Robinson, head of mortgages at online broker Trussle, said best buy mortgage rates are still below 1 percent and urged buyers to take advantage before they increase.

David Hollingworth, a broker at L&C Mortgages, said that somebody with a £150,000 mortgage could save £2,500 a year by switching deal, and protect themselves from forthcoming hikes.

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Santander currently offers two-year fixed rate remortgage charging just 0.84 percent to 60 percent loan-to-value (LTV), with a £749 fee and free valuation and legal work. HSBC offers a five-year fix at 0.94 percent, up to 60 percent LTV with a £999 fee.

By contrast, Coventry and Yorkshire building societies charge 4.49 percent, while Leeds charges 5.29 percent. Hollingworth said: “The cost of doing nothing and staying with your mortgage lender is rising.”

The L&C website allows homeowners to see how they could benefit from shopping around for a new mortgage. “With other living costs on the rise, it’s important that borrowers keep a tight grip on such a big part of their monthly budget,” Hollingworth said.



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