November 2021 saw the Bank of England confirm the base rate of interest is to remain at 0.1% for the time being. However, some initial movement in the financial markets following the announcement suggests that as many as two rate rises are anticipated in 2022 to go with the expected rises in inflation.
This historic low interest rate has been in place since March 2020 to help the economy through the Coronavirus pandemic, but now that we are exiting the worst of the crisis, people are beginning to sense that interest rates may once again increase in the near future.
Indeed, this includes the Bank of England which has admitted that a base rate rise before Christmas was possible, and that the Bank would “have to act” on inflation.
Additionally, major high street lenders such as Barclays, Lloyds, Halifax and Nationwide have already announced interest UK mortgage rate rises on some products in anticipation of this move. This is starting to shift the mortgage market, and means that some available mortgage products are now more expensive than they have been for a long time.
However, if we assume that the speculation is correct, mortgage interest rates rise next year and the lenders have correctly assessed the future, we should be sure to keep the rise in perspective.
According to Gráinne Gilmore, head of research at Zoopla: “Even with one or two quarter point rises in the base rate, mortgage rates will still remain low compared to historical norms – in the early 2000’s the base rate averaged around 4.5%.
“It is also worth noting that the regulation of mortgage lending from 2014 onwards has helped insulate the housing market from rate rises. In addition, many borrowers on fixed-rate mortgage deals will feel no immediate impact at all from rate rises”
There are also advantages that are associated with rising mortgage rates for home buyers who are prepared. The first way is that it offers a way for investors who have mortgages to take pre-emptive action now to secure their financial future.
While it is true that some lenders are already raising interest rates on some home buyer mortgages, and withdrawing some other low interest rate products, this is not the case across the board. There are plenty of mortgage options out there that have maintained the lower rate in accordance with the current Bank of England rate, and here is where an opportunity may lie for those who have already invested.
Buyers who move now can take advantage of the remaining low interest rate products and lock in that rate for the coming years – insulating themselves from rises. Even though the interest rate rises ahead may not be significant, moving quickly may be a good way to insure yourself and your home against significant cumulative rises in the long run.
The second way that the potentially rising interest rates can benefit home buyers is that the market will favour cash buyers in the future, even more so than it already does. If you can pay cash up front for your property, you will enjoy increased spending power and have an advantage over other home buyers due to the fact that you will not have to consider increased interest payments to consider.
On example of how this will benefit you can be seen when considering capital appreciation. If you buy outright in cash, every pound of value that is added to your property by the growth of the housing market is another pound that you gain. In contrast, those using a mortgage will have to pay the additional interest on top and not be able to earn as much profit when moving on in the future.
Furthermore, paying in cash will mean that you can afford to buy in a better location, or fund a larger property in areas that people with an equivalent mortgage spend may not be able to. This is especially true if you are purchasing off-plan where you effectively pay below-market rates during the construction process. By doing this, you can magnify your potential to earn capital appreciation as it builds during the construction process, and increase your potential profits or spending power even further in future.
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Overall, there is no reason for investors to be worried by the potential for increases over the current UK mortgage rates in 2022. In fact, the opposite may well be the case for may buyers, particularly those buying off-plan property with cash who stand to benefit from the changes.
The UK property market is extremely strong, and any mortgage rate increases that occur should not put home buyers off. The negative effects will be minimal, and the potential benefits on offer outweigh them. Demand is stronger than ever before, and house prices are also increasing at a record pace. This is the ideal time to buy a home and make the most of the current conditions.
Find out more about buying UK city centre property by getting in touch with our team today.