We are now in the unusual situation of finding that the higher the base rate goes, the more comforted international lenders will be and, subsequently, longer term fixed rate loans will become cheaper.
All of this is of course relative. Rates will still be much more expensive than say six months ago, but compared to the mass withdrawal of products and hikes in rates immediately after the Budget, we are actually not in a bad place.
The half percent rise puts the rate at 3.5%, the highest for 14 years. Back then, rates were slashed to compensate for the effects of the credit crunch in 2008. They have remained low ever since – many would say too low and for too long.
The increased rate will help savers and may even encourage more buy-to-let owners to sell up, favouring money in the bank to the volatile world of letting. This increases the supply of property to be bought, but could lead to good tenants losing their homes.
Inflation is, for now, receding as the collective belt is tightened. The cold snap has forced us to spend more of our household income on keeping warm, taking money that might have been spent elsewhere out of the equation. This will further suppress demand.
The Bank of England has been bold, faster and increased by larger amounts than many expected. We should now see the increases become more infrequent. Inflation is still way beyond the Bank’s target but for now at least the ship has been steadied. I would be surprised to see more than 1% added throughout the whole of ’23, unless there is another unexpected turn of events.
House prices will continue their downward journey by perhaps 1% a month. What will be felt more acutely by those in the sector will be a sharp reduction in the number of transactions. There will be fewer buyers for each property and, with prices dropping, many potential sellers will opt to stay put and ride it out. This will reduce supply even further.
2023 is shaping up to be the year prices fall and many of the estate agents on our High Streets today may not be there next Christmas.
The country’s sugar rush of cheap credit is over. Unfortunately, it is now the time to pay the price.
Jonathan Rolande is from the National Association of Property Buyers
