The property market is braced for another interest rate rise today after the latest inflation data shows the cost of living measure has failed to drop.
Inflation remained unchanged at 8.7% for May, with analysts warning a recession may be necessary to bring the rate down.
Analysts are expecting the Bank of England to raise interest rates from 4.5% to at least 5% this afternoon and the cost of borrowing is now forecast to peak at 6% as the central bank continues to battle stubbornly high inflation.
That could hit buyer budgets and also make sellers question whether to put their property on the market and the asking price they should list it.
Mortgage lenders have already been increasing their pricing ahead of the expected rate rise, with an average two year fix now above 6%, according to Moneyfacts.
Research by Nested has found that 48% of current buyers would need to reassess their position in the market before pushing forward with a purchase if rates rise further.
A quarter stated they would also have to pull out of a current property purchase if their mortgage rate was to increase, while half would have to borrow less or look at more affordable properties.
However, 28% stated that they would have to abandon their plans to purchase completely should the cost of borrowing increase any further.
Alice Bullard, managing director at Nested, said: “There’s a strong likelihood that we could see a thirteenth consecutive rate hike tomorrow and for the nation’s homebuyers, it will seem like the increasing cost of borrowing is never ending, pushing their plans to purchase that little bit further out of reach.”
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We haven't seen the likes of this since 2008 when interest rates peaked at 5.75%. Let's hope we're not heading towards the highs of 1989 when rates hit 14.88%.
Roger, with respect, its not even worth mentioning the 1980's interest rates, we all know it can't go there again unless the government want to be responsible for bankrupting over half the country.
Interest rates are returning to more realistic levels. The truth is that the property market has been fuelled by cheap money for well over a decade now and many borrowers have over-extended themselves. A re-set is required to restore the ratio between average house prices and average incomes, which will then put the market on a more sustainable footing for the medium / long-term. Unfortunately, this readjustment will cause significant financial distress for many individuals, and for the economy in general (given the pivotal role the housing market plays in other areas -carpets, furniture, etc.) in the interim.
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