Why Has There Been a Rise in Interest Rates and What Does it Mean for Bexley?

 

Following a tumultuous few months, the Bank of England has had to make the biggest interest rate increase in decades.

The Governor of the Bank of England, Andrew Bailey, has had to increase the base rate by a staggering 0.75% to 3% in an ongoing attempt to curb rising inflation levels. This is the largest increase in the base rate since 1989.

As it stands today, inflation is at 10.1% which is five times the Bank of England’s target of 2%. This dire economic situation is likely to impact many people in Bexley through increased mortgage payments which have been fuelled by the cost of living crisis and the impacts of the Russian war against Ukraine.

Let’s not also forget that the current financial situation initially stemmed from the impact of the pandemic since the government had to borrow a lot of money to support businesses through the furlough scheme and to help the economy stay afloat.
What Will Happen to Mortgage Rates?

It depends on the type of mortgage that you have, but for those who are on an interest-rate mortgage that tracks the base rate, mortgage payments will increase for homeowners in Bexley and indeed anywhere in the UK.

If you are on a fixed rate, you can be reassured that your payments will not change until your fixed period ends. Based on a 25-year repayment mortgage, if you borrowed £200K, an increase from 2% to 4% would cost an extra £207 per month; whereas an increase from 4% to 6% would cost a further £305 per month. 

What If I Rent a Property in Bexley?

Although Bexley is one of the most affordable places to rent in London, interest rate rises will affect the cost of renting property there because landlords will also be paying more to borrow money. In this sense, it is likely that rents will rise to reflect this increase in interest rates.

Rising demand combined with a falling supply also causes rents to increase. Additionally, it may also be that the pressure in the demand for rental properties could also increase as it is predicted that fewer people will qualify for mortgages due to the increased rates.
How Can Interest Rates Affect Buyers and Sellers?

Interest rate rises will impact both buyers and sellers. Huge increases in mortgage payments are bound to add further financial pressure on families and result in many deciding that they cannot afford to make their next step, or indeed, their first step on the property ladder.

As the cost of living continues to rise, buyers have less spending power which means that sellers have to bring their properties to market with more realistic prices that people can afford. This may result in lower prices in some areas and a slowdown in the housing market.

The majority of sales in Bexley during the last year were semi-detached properties, selling for an average price of £538,624. This is almost double the current average for the whole of the UK which stands at £292K. This means that mortgage increases could potentially hit homeowners in Bexley particularly hard depending on the type of mortgage they have signed up to.

What is Likely to Happen to Mortgage Rates in the Future?

There is always uncertainty over the long-term trend for mortgage rates. This means people will have to consider how much they can borrow and over what sort of time period.

Mortgage lenders look at the likely long-term costs of borrowing and try to stay one step ahead of the Bank of England when setting rates for fixed-rate deals.

Unfortunately, for home buyers and renters, the worrying thing is that the current 0.75% rise is unlikely to be the last base rate rise. Many analysts are predicting that we can expect further rises in the new year when rates could reach 4.75% as early as January 2023.

So, if you have any questions regarding the Bexley Borough property market in the coming months, we, like most agents, will freely give that advice to you at no cost or commitment to you.

Call our team now on: 01322 559955 or pop into one of our offices:

Bexley:

67 Bexley High Street, Bexley, Kent, DA5 1AA

Sidcup:

90 Sidcup High Street, Sidcup, Kent, DA14 6DS