Rate rise not all bad news for first-timers
The Bank of England's August interest-rate hike to 4.75% and subsequent rise to 5.0% in November took many by surprise.
With many first-time buyers struggling to get on the property ladder the 0.50% increase will certainly put some potential buyers off making their purchasing decision this year for two reasons — the extra monthly payments and because any rate rise knocks confidence.
House prices could fall
House prices may well fall in the short term but there are potential benefits for the first-timer that could more than balance the downside. The rate rise, while disappointing news for people with a variable mortgage, could be good news for those still looking and negotiating a purchase. Their deposit is no doubt sitting in a bank account earning interest — and due to earn more if the savings rate rises. More crucially, the interest rate hike is likely to put paid to any talk of a mini-boom in the housing market that has been touted by those who have seen prices creep up throughout 2006.
Higher rates also make it less attractive for buy-to-let investors, who are already experiencing yields as low as 0.7%, which has been a key driver of the market in recent years. These figures do not stack up when investors can realize 5% by putting their money in the bank.
Significant number of repossessions could be on the way
The accepted wisdom is that even the hottest house-price boom will slow down if no new blood comes into the market. But given that in the first half of 2006 the number of home repossessions nearly doubled to more than 8,000, a mere slowdown may prove to be wishful thinking. These repossessions have been taking place against a background of flat, and relatively low, interest rates. Any further rate rises could bring a significant number of repossessed properties back onto the market, cooling the market further and allowing the cycle to start again.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The overall cost for comparison is 7.1% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. There may be a fee for the mortgage advice. The precise amount will depend on your circumstances, but we estimate it will be 1.5% of the loan amount with a minimum fee of £500 added on to the loan.
Mayfair Consulting Limited is an Appointed Representative of The Mortgage Times Group Limited, 279 Tottenham Court Road, London , W1T 7RJ , which is authorised and regulated by the Financial Services Authority no. 303007.
