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News: Homebuyers breathe sigh of relief

Fri, 24 Aug 07

Agents and homebuyers a like breathed a sigh of relief as news that inflation surprisingly dropped below the Bank of England’s 2 per cent target last month, meaning further interest rate rises are likely to be put on hold for the time being...

This is just as well as figures released today from the National Association of Estate Agents (NAEA) indicate that the rise in interest rates has had a significant negative effect on regional housing markets and individuals are clearly feeling the strain on their pockets.

Results from the survey reveal an astonishing 71% of agents reporting that the interest rate rises have had a negative effect on the housing market in their area.  Only 6% believe it to have been a positive move and the remaining 23% considered the rises to have had no effect at all.

Figure 1 – Interest rate effect on the market

 

It was also revealed that 61% agents had experienced a sharp drop in the number of house hunters on their books following the latest rise.  When this figure is broken down, 48% saw the decline by 5-10%, followed by 14% of agents who had seen a reduction of 11-15% and finally 13% of agents saw a 16+% decrease in the number of house hunters on their books. 

The remaining 25% experienced a drop of 4% or below.  This sharp drop indicates that consumer confidence has taken a tumble and individuals have had to tighten their belts to accommodate the increase of rates.

Budgets affected

The rate rises have also had an effect on purchasers’ budgets when searching for a new home.  Agents reported that 61% of house hunters have been forced to search for a property in a lower price bracket than anticipated.

Figure 2 – Percentage of house hunters who had been forced to search for property in a lower price bracket following the recent interest rate rise

 

Of the 61% of house hunters who had lowered their property price bracket, 53% had decreased their budget by 5-10%, 9% had lowered it by 11-15% and 10% had dropped it by 16+%.  The remaining 28% of house hunters decreased their budget by 4% or below.

Finally, when the agents were asked whether they thought the market in their area could with stand another rate rise the results were mixed.  47% said ‘no’, whilst 53% believed it could, but by only fractional amounts.  Out of those who voted ‘yes’, the majority answered that the market could with stand a further 0.25 rise.

Glimmer of hope

NAEA president, Stewart Lilly, comments: “There is a glimmer of hope that further interest rate rises are temporarily on hold following the latest round of reports.  If this is indeed the case it will provide much needed comfort to house hunters who have been grappling with the effects of the past three rises this year.

“The increases have already had a tightening effect on the housing market, however the Bank of England has suggested that there will need to be a further rate rise to at least 6 per cent before we reach the peak of the cycle. Nevertheless, it is encouraging news that this rise might be on hold for the time being.”

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