Average first-time buyers already paying £612 more a year on mortgage costs than the beginning of March
Simon Bath, property expert and CEO of iPlace Global, the creators of Moveable, comments on what an interest rate rise means for first-time buyers
The property market is intimidating enough for first-time buyers to get on the ladder; now, house prices have also reached an all-time high – making the process even more difficult. With this in mind, the Bank of England’s recent inflation projections could see an interest rate rise so large that first-time buyers will still pay more for a property, even if prices fall.
As soaring inflation continues to taint the UK economy, the effects of rising interest rates are making mortgage prices more expensive. Experts have warned that property prices are set to cool in the coming months, especially because British households are currently struggling with the biggest drop in disposable income since 1964. Further to this, a 40% increase in energy prices in October is set to also contribute to the plummeting demand for properties.
The fall in demand is set to slow down the rapid growth of current house prices; however, Simon Bath, CEO of iPlace Global, the creators of Moveable, warns prospective buyers that while prices are set to drop, mortgage costs are also rising at a pace fast enough to supersede this.
The most recent rate adjustment to 1% will push monthly repayments up to £928, and a rise to 2% could push average costs to £983 – meaning that buyers would pay an extra £1272 a year compared to if they purchased a property in March. Even if the price of their home went down by 5%, first-time buyers are set to pay significantly more.
Simon Bath, property expert and CEO of iPlace Global, the creators of Moveable, comments:
“The Central Bank has warned that inflation could reach double digits by the end of year. This news means that the younger generation – in particular first time homebuyers – will be most affected by rising rates. This is because first-time buyers often have a smaller deposit and need the most borrowing power – which will undoubtingly mean that borrowers will be scrutinised over their ability to afford a mortgage when applying to lenders. That being, said, many lenders will continue to offer rates for the broad spectrum of home movers.
“An increased rate move could add hundreds of pounds a year to the average mortgage bill for those on the standard variable rate – especially in an arena with such high demand and low supply. The Bank of England base rate has just reached 1% for the first time in thirteen years, with expectation that this could rise above 2% in the coming months. For many homebuyers, this could still be a relatively cheap level of borrowing – especially given the Central Bank’s projections – which potentially makes it an extremely attractive option versus the ever increasing average rental levels seen in the market.”