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Bank of England base rate effect on housing market

Interest Rates in simple terms.

Interest rates refer to the percentage charged for borrowing money or earned on savings over a one-year period. When an individual or company borrows money from a bank through a loan, the interest rate represents the cost of borrowing those funds. Conversely, when a person deposits money into a savings account, the interest rate is the amount paid by the bank based on the deposited funds.

As Bank Rate rises from very low levels, savings and loan rates likely see a more muted adjustment as well.

How does it affect the property market?

Since the Bank of England has maintained its standard interest rate of 5.25 percent, mortgage approval figures have risen while more property owners have listed their homes for sale, contributing to the United Kingdom’s steady rise in housing prices monthly. With financing remaining accessible for home buyers at favourable rates, application volumes from prospective purchasers have strengthened correspondingly in recent months. Similarly, with home values continuing their trajectory upwards, those home-owners who had delayed listing their properties amid past economic uncertainty now feel more confident in the housing market’s stability, restoring a balance between supply and demand. As long as rates hold at their current accommodating level and the job market remains robust, the gains in housing sector activity are expected to persist on the back of supportive monetary policy.

Potential Impact of Rising Interest Rates on UK Housing Market.

As the Bank of England has increased interest rates in recent months to curb inflation, questions have emerged regarding the potential impact on the United Kingdom’s housing sector. While wage growth has provided some relief to household budgets, higher borrowing costs pose affordability challenges for prospective home-buyers. Analysts project that if interest rates remain elevated in the near future as expected by the Bank, housing prices are likely to experience downward pressure as demand cools off. However, once these conditions stabilise and rates eventually decline from their current levels, the housing market is foretasted to regain footing and resume an upward trajectory in prices by 2025.

Is Now the Time to Purchase a Home?

The current housing market may present an opportunity for home buyers. For many individuals, monthly mortgage payments are often lower than rents, meaning home-ownership could result in significant savings over the long run. Should interest rates decline further in the future, the potential cost advantages may increase. Additionally, the housing market has shown resilience during recent economic challenges. Overall market conditions remain favourable for taking advantage of the financial benefits of purchasing a home.

Is the Current Environment Conducive for Real Estate Investment?

According to our analysis, lending activity is projected to stabilise going into the new year, with volumes still anticipated to surpass pre-pandemic levels seen in prior years. Real estate continues to offer a sound strategic opportunity for diversifying investment portfolios. Through our extensive market research of the Yorkshire property market, we have determined that the rental market environment provides a degree of stability and prospects for growth that can help minimise risks. Robust tenant demand coupled with constrained supply of rental properties indicate that current conditions are conducive to pursuing investment property financing.

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