Base interest rate rise sparks optimism in the property market

There are early signs of optimism in the property market following the latest announcement from the Bank of England. The 14th consecutive base interest rate rise has seen an increase of a quarter of a percent, bringing it up to 5.25%. Although the rate has increased, it has done so by less than the previous rise in June, of 0.5%. The latest is equal to those of March and May, the smallest increases of the year so far. By making this lesser adjustment, the Bank of England is showing confidence that its strategy to control inflation is working.  

Lenders embrace positivity as rates begin to ease

Lenders are sharing in this optimism as they cautiously begin to lower their rates. Clydesdale Bank has already announced a reduction to their 90% LTV rates with more lenders confirming reductions of their own products. Many brokers in the industry believe fixed-rate mortgages will be unaffected by the latest base rate rise. Lenders are unlikely to adjust their fixed rates as they have potentially already prepared for this when changing their products for previous hikes.  

The changing landscape of mortgage affordability

At times of large base rate rises, financial advisors would often find themselves informing clients that their desired mortgage product was no longer available. Even a slight increase from 5.5% to 5.75% could strain repayments and cause concern about affordability. Clients would be left disappointed and feeling a loss as to what to do. As lenders bring their rates down, clients can be more confident in their ability to afford a property, without feeling like it could be ripped away from them. Lenders consider loans in the long term, so their renewed confidence could see rates dropping – indicating potential stability for the next few years.

The transition from low rates

We were living in a time of drastically low interest rates for well over a decade. Rates of 1%, and even lower, were unsustainable and we are now experiencing the financial correction of this. When rates were low, mortgage repayment fees were less over shorter terms, which gave more people extra cash to spend. Fuelled by consumable trends, social media culture, and streaming services to name just a few, we didn’t stop to question what we were really spending our money on. This is part of the reason they increased interest rates to encourage saving and not spending.

Home Legal Direct’s top tip!

If you are experiencing uncertainty whilst trying to secure a mortgage, we recommend having a good look at your current expenses. Now is the time to dial back on subscriptions, memberships, and other costs that might not have concerned you previously. Dial back on streaming platforms to the ones that you actively use. Swap going to the cinema for a movie night with the family. Instead of going out for an expensive meal, give making pizza from scratch a go. A few simple changes can do a wonder to boost your finances and help you bridge the gap between rates that you may not have thought was possible!

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