Recent rises in the base rate of interest have been well-publicised recently. The fortunes of international property markets, and notably the UK property market, are inextricably linked to this. This is a particularly hot topic given recent commentary by prominent economists suggesting that markets have been running too hot in recent years.
In the past few weeks, central banks including the Federal Reserve (the Fed) and the Bank of England have raised interest rates, and a further tightening of monetary policy is the subject of some speculation.
Hot inflation figures in the USA and UK
In our post-pandemic context, inflation has now exploded. Across the developed, world consumer price index (CPI) inflation is at its highest level for more than 30 years. The inflationary problem is particularly pronounced in the USA, with the most recent inflation report suggesting CPI has now passed the 8% mark.
Why do central banks raise interest rates?
An increase to the base rate of interest is a key tool to combat inflation. Whilst rates have been kept low during the past decade to encourage spending and stimulate economic growth, particularly in the aftermath of the 2008 Global Financial Crisis and the 2010 Eurozone debt crisis, the tide is beginning to turn. Rising rates essentially encourages consumers to save into a bank account rather than spend, and also reduces their discretionary income by increasing the average mortgage repayment (tracker mortgages are particularly prevalent in the UK, for example).
What does this mean for the UK property market?
Low rates of interest, and therefore cheap mortgages, have stimulated house prices in the UK in recent years. The average house price in the UK reached a record high of £348,804 in February this year (2022). This growth was also seen during the pandemic due to a combination of cheap finance and a stifled supply of new housing. Rental growth also exceeded expectations, pushing more investors into the buy-to-let property sector.
It would be premature to say if the UK housing boom is reaching an end. Whilst it is likely to slow versus previous years, in part due to the end of the stamp duty holiday, the chronic undersupply of housing in the UK is showing no signs of resolving itself. As a result, top industry research from the likes of Savills and JLL points to continued growth across the country. The fallout of rising rates will become known in the months ahead, but we are unlikely to see major impact on the UK property market – which has been famously resilient over the last 50+ years.
Should you consider remortgaging?
Depending on your current mortgage conditions, remortgaging may be a smart move in the current climate. If you are on a tracker, or coming to the end of a fixed rate on a variable mortgage, then you may be in for a shock when your interest rate is impacted by the rising rate of interest. Lenders are also likely to raise their interest rates in line with the base rate, so you would be best served acting now rather than later.
Property investments with Jonathan Ralph
Property is a stable and dependable asset class. The UK market in has been particularly resilient in the face of harsher economic climates than the current rises in interest rates. Whilst rates are indeed rising, and this may continue in the months ahead, property should always hold a role in a diversified portfolio.
If you are looking at adding an investment property into your portfolio, get in touch to review your options. I work with international clients to ensure that they are investing in the right market for the long term, ensuring reliable rental yields and strong capital appreciation. My service is end-to-end, from property sourcing to mortgaging to lettings management. With exclusive properties available at unbeatable prices, property investing could not be simpler.
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