Bank of England

Rate rise could create environment of 'even greater caution'

An increase in the Bank of England base rate could create an environment of "greater caution" in the property market, according to one bridging lender.

The Monetary Policy Committee (MPC) will meet tomorrow (2nd August) to decide whether or not to increase the base rate from its current 0.5% figure. 

The announcement will follow research from Nationwide’s house price index which found that annual house price growth had picked up to 2.5% in July. 

In the report, Robert Gardner, chief economist at Nationwide, said it was looking increasingly likely that the MPC would increase rates from 0.5% to 0.75% at its next meeting.

“Providing the economy does not weaken further, the impact of a further small rise in interest rates on UK households is likely to be modest.”

However, Jonathan Samuels, CEO at Octane Capital, said: "If this week's rate increase happens, it could be perceived as heralding more hikes, which could create an environment of even greater caution.

"The direction of inflation and wage growth will be key to how the property market accommodates rates rises, however small, during the course of the next year.

"While the jobs market overall is strong, many households are feeling the pinch. 

“With Brexit negotiations in a state of disarray, confidence is being further eroded.”

Ishaan Malhi, CEO and founder of Trussle, felt an interest rate rise could impact potential buyers. 

“If rates are to rise, this should have a downward impact on property prices in the long run, but first-time buyers will suffer the effects of incomes being squeezed and loan rates increasing, making it harder for them to get a mortgage in the short term.”

Mark Harris, chief executive at SPF Private Clients, added that a rise would inevitably have an impact on the housing market.

“It is true that many borrowers have been taking advantage of the competitively priced fixed rates available and protecting their monthly payments against future rate rises. 

“But there are those mortgage prisoners on their lender’s standard variable rate who will feel the full impact of any rate rise.”

Mike Scott, chief property analyst at Yopa, added: “If the cost of borrowing continues to creep up, the longer-term effect on the housing market may be more severe, as mortgage rates rise from the historically low levels that we have enjoyed for the past decade.”

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