A stark warning has been made to lettings and estate agents that interest rates as high as seven per cent may be the norm in future.
Peter Brodnicki, chief executive of the Mortgage Advice Bureau, has told a podcast for agents that the lending market is still shuddering from the effects of the Liz Truss mini-Budget. And he says that while demand for property has remained resilient with mortgage brokers still seeing demand, as rate rises bite the market is likely to slow.
He says: “We are now seeing rates start with a six, with another rate rise or two likely, although the larger than expected fall in inflation announced a few days ago is helpful. I think this is something that we will have to get used to for a while until inflation can be brought under control, as whilst it sits over three per cent it is difficult to see interest rates falling. When inflation falls, we should see rates decrease fairly quickly, but we should not expect this to happen in the short term.”
Brodnicki tells listeners to the podcast that while some buyers will be postponing their plans, those existing owners seeking to remortgage will be accelerating.
He says: “The urgency to do so has never been greater. Earlier in the year there was some reluctance to commit to a fix rate when there was talk of interest rates peaking, with predictions that they may start to fall within 12 months. Rates have however continued to rise and now any prospect of rates falling has been pushed back.
“When rates got to around four per cent, five-year fixed rates were popular, but as rates have continue to rise, with talk of more rises to come, then shorter two-year fixed deals are proving more popular. Of course a lot of people are still on fixed-rate mortgages taken out several years ago, and so the government’s plans to curb spending by increasing interest rates doesn’t impact the majority of borrowers in the short term, therefore limiting the impact of rate rises on inflation.”
The comments were made on the podcast from The Guild of Property Professionals.
Guild chief executive Iain Mackenzie asks: “What is the impact of the very sharp rise in terms of the consumers’ mindset? Are people putting off their decision to buy thinking rates are going to come down at some point and we possibly get back to a zero percent or one percent base rate? Or is this just the new norm and people are accepting it?”
To hear the podcast visit The Home Stretch.
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With household and government borrowing at an all time high, the longer rates stay anywhere near this high, the longer and colder the recession that will follow, could make 1929 look like a teddy bears picnic. Mssrs Bailey & Sunak know this, the 2% target may go out the window instead. People love to quote the "new norm" on rates changing, perhaps instead time to reset the norm on inflation, it will be hard to get back to 2% with Russia trying to starve and freeze the world at the same time.
I am sure people would rather have a more expensive weekly shop with inflation running at 5% that have no job and nowhere to live which are very real prospects if this drags on too far into 2024, we are seeing some of it happening already.
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