How Will The Recent Interest Rate Rise Affect Luton's Property Market?
The Bank of England has been at it again, fiddling with the base interest rate – it has been raised to 1.0%. That’s the 4th rise since December 2021, and experts think the upward trend is set to continue. So what does that mean for you, and for Luton’s property market? Let’s find out …
What Does It Mean When Interest Rates Rise?
The Bank of England reviews the base rate every six weeks or so, and tweaks it up or down if they think the overall economy would benefit from it. The media always goes into a bit of a frenzy when interest rates change, and there’s a good reason for that:
Any change in the UK base interest rate can have a
direct impact on the monthly cost of your mortgage.
In real terms, although the calculations are complicated, each 0.25% change roughly equates to a £15-£25 difference in your monthly mortgage payment, depending on what kind of mortgage you have – and this change can be up, or down, depending on which way interest rates move.
That’s not insignificant.
It’s easy to see how further changes could quickly make a huge impact on your monthly finances, and we’ve seen enough of that lately in Luton and nationwide.
But don’t panic just yet – not everyone with a mortgage will be affected – it depends on the type of mortgage you have. Those on fixed rate deals will see no change in monthly payments, but if your fixed term has ended, or you’re on any kind of variable rate, your payments are set to climb.
What Can I Do To Minimise The Impact?
Taking action after interest rates have already changed is a bit like closing the gate after the horse has bolted. But, just because you might have missed the boat this time, it doesn’t mean you can’t take action to guard against future changes.
And let’s face it, the chances of these happening are high right now.
Although interest rates appear to be on the rise, they are still relatively low historically, and no one really knows where they will go next. For existing homeowners, now is still a good time to review, and possibly update your mortgage provision – whether you select a fixed, or variable rate it will still likely be lower than any default rate you might be on if your initial mortgage term has come to an end, for example.
And even if you take early repayment fees into account you could still save money. Many homes have increased in value significantly since the start of the pandemic. The lower your Loan to Value (LTV) – the amount you need to borrow as a % of the value of the property – the lower the interest rates on your mortgage will generally be. Over time, this could save you £££. That has to be worth a look.
What Kind Of Mortgage Should I Choose?
Choosing a fixed rate mortgage lets you know with certainty how much you’ll be paying each month for a set period of time. But it is not without risk – you will pay a little more upfront so that the bank isn’t taking all the risk, but if rates continue to rise, you could be quids in. If economic circumstances dictate that interest rates need to be cut, however, you could be left high and dry paying over the odds until your fixed term deal ends.
Choosing a variable rate mortgage on the other hand, means you might get a better deal right now, but will be more vulnerable to rate changes – and the rates can move down as well as up. With the mess the economy is in right now, it’s anybody’s guess what the future holds.
Everyone’s circumstances are different, so you need to consider what’s right for you. In our experience, fixed rate deals can be a great choice for people whose budgets are tight– knowing how much you need to pay each month irrespective of what the Bank of England does, offers great financial security. And variable rates can often be the best choice for longer term investors with more financial flexibility.
If you’d like mortgage advice, our independent advisors at the Penrose hub would be happy to talk to you.
What Will Happen To The Property Market In Luton?
We speculated in a recent blog that the property market in Luton has entered a period of relative stability compared to recent times. And despite the recent interest rate hikes, we stand by that. Why? Because mortgage rates are only one part of the property market jigsaw.
Relative market stability in Luton in particular has partly to do with the rise in the percentage of homeowners in our town – the number of owner-occupiers in Luton rose by 3.7% between 2017 and 2021, after falling in the previous 4-year period.
Homeownership tends to have a greater long-term impacts on property market pricing than investment ownership.
It’s about settling down, and about community – and this is something Luton is great at.
Investment owners can get twitchy when the market is continually shifting, and this can result in more properties being placed on the market and more people moving. A trend towards homeownership will spark a natural slow-down in the rate at which properties change hands, creating price stability.
Add to this the fact that when mortgage rates enter a period of flux, homeowners traditionally bed in, and tend to look at remortgaging as safer than moving home, and you start to understand why all these recent market shifts point to a slowdown.
Better the devil you know, and all that.
Higher mortgage interest rates will also deter those who might not otherwise have considered a new or a re- mortgage but were jumping on the price-rise bandwagon. The recent low rates created something of feeding frenzy that has been responsible in part for the rapid rise in prices and a reduced supply of property in Luton over the last couple of years.
As this behaviour subsides, Luton’s property market has seen a return to non-crisis moving patterns – it’s as if people have started to breathe again and look to the future in a more considered way.
In any economic climate there is always natural movement driven by an ongoing cycle of needs, such as changing family or work circumstances, and cultural and societal shifts – most recently seen in the desire for homeworking spaces and access to private outdoor space as a result of the pandemic – these circumstances were extreme, but by no means unique in the way they affected demand in the property market.
At Penrose we believe that property market stability is in Luton’s future.
And while price rises and a manic market can be positive things, they are of most value to the wider market when cushioned between episodes of more thoughtful and measured decision-making. Big-picture buying behaviour benefits everyone in the long term.
In Summary …
The recent interest rate rise will inevitably hit the mortgage rate, and some people will see their monthly premiums rise. But there is still time to act to mitigate against future rises, and the changes could be good news for the Luton property market – long term price escalation and high demand is unsustainable and destabilising.
It’s time for a property-market breather. And we’re happy to help you find your place in the Luton property market chill zone. Get in touch, or drop in and see us at the Penrose hub for a chat about what the future holds for you and your Luton property.
We’ll put the kettle on.