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The Bank of England will raise interest rates again on Thursday, with Bank Rate to rise by 75 basis points to 2.50%, according to current money market pricing, which will have significant implications for the housing market.

The market meanwhile looks for a further ~125bp over the remainder of the year, implying a terminal rate that could be as high as 3.5-4.0%.

In response, analysts at CMC Markets say of the housing market: “hurry if you’re selling, halt if you’re buying, stay if you’ve borrowed”.

They say the increase in Bank Rate directly impacts mortgages on variable rates, believed to be around 1 in 5 households in the UK.

But another 3.1 million households will be renewing mortgages when their fixed-rate periods expire in 2022-2023, according to UK Finance estimates.

Borrowers whose repayments are directly linked to the base rate, as set by the Bank of England, will now face mortgage repayments at rates between 3% and 4%, up from 1.75% and 2.75% only five months earlier.

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This will inevitably spill into rent prices.

“Landlords will likely increase rent prices or sell to cope with increased mortgage repayments,” says CMC Markets, in a recent note.

CMC Markets analysed the latest data for June 2022 from HM Land Registry, published on August 17th, and concluded that the likely tendency for house prices is in a temporary slowdown, which is good news for those waiting a little longer to buy a home.

“Houses sold in June 2022 only increased in price by 1% compared to May, whereas, last year, this constituted a much more generous 5.7% surge. This is only the first month this year for prices to slow down at such a fast rate, so some caution before jumping to conclusions is advised,” says Michael Hewson, Chief Market Analyst at CMC Markets.

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Nationwide said house prices were up 0.8% month-on-month in August, after taking account of seasonal effects

Hewson says although house prices may be slowing down, they are not decreasing.

But, other analysts are warning of outright declines over the remainder of the year.

“We now expect house prices to fall by around 2% in the second half of the year, rather than just hold steady,” says Gabriella Dickens, Senior UK Economist at Pantheon Macroeconomics. “The recent surge in risk-free interest rates and mortgage rates has been so severe that we now doubt that a period of falling house prices can be avoided.”

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For those still keen to get on the property ladder, Hewson advises there are plenty of fixed-rate banking products that can insulate them from the current spiralling interest rates on mortgages.

“They should, however, prepare for the possibility of being faced with higher-than-expected repayments once the fixed rate period expires, as the new variable rates are at the lender’s discretion. Fixed rates are not a cure-all either, as they may now be set to a higher level to start with,” he says.

Turning to the buy-to-let market, landlords are expected to either pass the increased mortgage repayments onto tenants by increasing their rent or simply sell fast to lock in a better price.

“Right now though, those already on the property ladder are generally better off staying put rather than moving or re-mortgaging. They would not get a good deal on their old house in this market and may likely end up losing more money overall,” says Hewson.

By Gary Howes

Source: Pound Sterling Live

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