What the Recent Changes to Interest Rates Means for the Property Market

11 October 2022

There have been unprecedented moves in the monetary market in recent weeks with a lot of speculation about how this will impact the housing market.

Post-pandemic, we’ve seen an incredibly buoyant property market with a distinct lack of housing available, coupled with high selling prices and quick selling times. Back in August, mortgage approvals were the highest they’d been throughout 2022 highlighting buyer confidence in the market. With the mini-budget introduced in September and the rising cost of living particularly with utility bill increased in October, there will no doubt be a different economic landscape ahead, which will of course impact the housing market in coming months.

The events last week were fast moving and will likely cause some to pause for thought. However, feedback from ESPC solicitor estate agent member firms is much more balanced and more reflective of the real market activity and confirms that there is still strong interest from buyers and sellers.

Partner and Head of Residential Property at ESPC member firm Lindsays, Andrew Diamond, gave us his thoughts There has been much crystal ball gazing in the media in recent days, with commentators making predictions about what is likely to happen in the Housing Market in coming months. The first thing which jumps out at me is that the various predictions are all guesswork – some of the guesses more educated than others. The reality is that while rising interest rates are a factor which affect the market they are not a factor which works in isolation, and at this point in time nobody actually knows to what extent they’ll affect the market or what the timescales around that will be. 

There are a number of factors which haven’t materially changed of late: purchaser appetite to buy remains generally strong; Employment levels are high, and scarcity in the labour market means that amongst buyers there isn’t the level of concern about job security that there might have been in other times; The availability of mortgage funds remains generally good, notwithstanding the short term uncertainty about interest rates and the resulting re-pricing of those funds; and finally, many buyers are also sellers, and vice versa, meaning that whenever this group of people are trading in they are likely to make some gains on the swings and some losses on the roundabouts – it’s just not always exactly the same swings and exactly the same roundabouts.”

A robust housing market

The property market in Scotland has traditionally remained robust and we don’t anticipate any immediate change with this. We anticipate the market will soften and that property sellers need to set realistic expectations on what their property will achieve, as buyer demand for quality local housing stock remains steady.

Short-term squeeze on mortgage product availability

Challenges for buyers come from two places. There are currently less mortgage products available to choose from right now, particularly for those needing a higher loan to value ratio. According to moneyfacts.co.uk there were 3,800 mortgage products available on 26 September 2022 compared to 2,262 one week later. We now expect to see an increase in mortgage products once again in the coming weeks. The interest rate increases that have already come into effect and have been predicted will also have an impact on what people can afford to pay monthly. The Bank of England has signalled to the markets it does not expect to review interest rates until 3 November 2022.

Interest rate forecasts

Interest rates rose to 2.25% on 22 September 2022, the highest they’ve been since 2008. There was then much speculation that rates will continue to rise substantially, potentially as high as 6% in 2023. The UK Government’s U-turn to scrap the 45p top rate of tax appears to have steadied some of the market concerns, with predictions currently sitting at between 5.5% and 5.75%.

Expert advice is crucial

This, combined with utility cost increases as well as the potential for food bills to increase, it is important that potential buyers review their initial budgets. 

We believe in a sensible approach and understanding the long-term value of home ownership as the dynamics of the housing market change once again.

Latest market data

It’s too early to see any direct signs of change in the property market. Last week we saw a week-on-week increase on new properties on the market, with similar volume of new insertions that were recorded in 2019, suggesting a normal listing behaviour.

First-time buyers

If you are a first-time buyer, it is important you work with your solicitor to make sure you have all the latest, real-time data on what is happening in the market. They will be able to help you identify the best property types and locations for your personal budget.

We have asked the Scottish Government for clarity on Land and Buildings Transaction Tax (LBTT). The UK Government announced changes to Stamp Duty last month, but property taxation is a devolved issue, and the Scottish Government is yet to make an announcement. We hope that they follow suit so that Scottish buyers can have some of the same benefits as those buying in England and Wales.

Recommendations for sellers

If your home is currently on the market, we are still seeing interest from buyers and healthy demand. Speak to your solicitor who will keep you in the loop with the latest market data and more importantly, actual selling prices in your area. 

Thinking about remortgaging?

If you’re on a fixed rate you need to understand when your fixed rate term is due to expire. If it is in the next few months, it is a good idea to speak with your mortgage adviser and identify the best new deal for you.

If you decide to change to a new deal before the end of your fixed rate period, you should consider any early repayment charges that may apply.

Overall 

Whilst the near-term economic outlook is uncertain, evidence suggests that buying a home remains a sound medium-term investment and your solicitor estate agent is best placed to keep you up-to-date on the latest developments.