Romford buyers and sellers - Let me ask you this question?
The headlines in the media about the base rate increases and subsequent mortgage rate increases are usually very negative. Here we present a more balanced view.
On 15th December, the Bank of England increased the base rate from 3% to 3.5% which is the 9th increase in a row and now means it’s the highest it has been since 2008.
Approximately 1/3 of properties have a mortgage and 4,000,000 will see an increase of around £3,000 on their mortgage.
1,600,000 of these are on a tracker rate and with the increase they will see a £49 per month rise and are £333 higher than this time last year. Variable rates will go up by £31 per month and are £210 higher than this time last year.
Inflation is 10.7% and is currently well below the target of 2%. An overdraft is currently around 20.73% and credit cards around 19.31%.
We are all experiencing difficult times financially at the moment but the negative points listed above are all you will read in the media. So it’s only fair to present the other side of the story to give a balanced view to buyers and sellers.
Bank of England was established in 1694 and rates did not drop below 2% until 2009 for the first time in history. During this time, the average base rate has been 5.92% and it has been 9% since 1975.
The cheapest 2 year fixed rate is 4.6% compared to 5.62% in October and is 4.5% for a 5 year fixed rate compared to 5.34% in October.
Mortgage interest rates have started to move back down after the mini-budget and the base rate rises have been factored in already by many lenders. Inflation has actually fallen from 11.1% to 10.7%.
There has been phenomenal equity growth between February 2020 and April 2022 (£48 per day on average) and buyers have already been stress-tested for rate increases for several years now.
Clearly people are paying more for their mortgages but just under 50% of buyers move with cash or a deposit of 50% or more and many homeowners have had an equity buffer build up in recent years.
Moving from a historically low base rate to 3.5% has reduced the budget of the average buyer by approximately 15% if their mortgage payments remain the same, so they need to increase their monthly payment or reduce the amount they are willing to spend to keep their mortgage payments the same.
Let me leave you with a questions from a buyer’s perspective.
Would rather buy a property in a growing market, with competition from many other buyers at a lower interest rate?
OR
Would you rather buy a property in a changing market with less competition from other buyers at a higher interest rate?
I hope this post has brought a balanced view to the base rate increase and please get in touch if you have any questions about the Romford property market.
07969 638349 or duncan.kaye@keysandlee.co.uk for help or advice.
* All data correct as of 16th December 2022 – Sources, Simon Gates (Homesearch), Dataloft, Bankofengland.co.uk,