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News: Weekly News Round Up - Fears Over Mortgage Interest Rate Increases Emerge

Fri, 27 Aug 10

A degree of hysteria is setting in regarding interest rates. With the base rate remaining at the historically low level of 0.5% the only way they can go is up and experts are predicting a spate of rapid rises over the next two years. 

Among the chief doom-sayers this week was think tank The Policy Exchange. It is predicting that following a brief economic recovery recession will kick in again, inflation will rocket and interest rates will need to rise markedly – see Home News 23 Aug 2010.

The think tank’s chief economist Andrew Lilico says that interest rates could reach 8% over the next two years as inflation hits a possible 10%.

If true this would have a devastating effect on the property market. Mortgage rates would rise leaving even more first time buyers struggling to gain a mortgage. For many of those on tracker and standard variable rates the threat of repossession would surely loom large.

A study by Markit and YouGov this week found that household finances are already strained.

Their August survey of 2,000 households found increasing concerns over rising bills and the threat of redundancy. One in three households said their finances had got worse between July and August, compared to 6% who said they were improving.

Around a quarter of those surveyed said they thought their home had lost value during August, compared to one in ten you thought it had increased.

Another survey by moneysupermarket.com says inflation is already becoming a problem for households, and suggests interest rates could start rising soon.

Over half of respondents (56 per cent) revealed that the rising cost of living had forced them to dip into their savings accounts.
Clare Francis, site editor at moneysupermarket.com, said: "The official rate of inflation slowed last month but at 3.1% it is still well above target and with the base rate remaining at 0.5 per cent, Brits still face an uphill struggle as they try to generate value from their savings at the same time as they're battling rising living costs.”
The mortgage market continues to be subdued, according to latest figures released by the British Bankers Association (BBA).

It says there were 33,698 mortgages approved for house purchases in July, down 877 on figures released the previous month. This is the second month in a row the figures have fallen and July’s figures compare poorly with the recent high of 45,515, recorded in December last year.

Gross mortgage lending in July was below the six monthly average, the figures also reveal.

Further evidence emerged this week that rents are rising in the buy-to-let sector.

The latest Residential Lettings Survey from The Royal Institution of Chartered Surveyors (RICS) shows that 27% more surveyors reported a rise in rents than a fall over the last three months of the year. A chief cause is a rise in demand for rented accommodation as first time buyers struggle to purchase a home. Another is a fall in supply as house prices flatline and landlords hold on to their assets.

This is a far different picture to last year when house prices were increasing. During the summer last year 29 per cent more surveyors reported falling not rising rents.

The strongest growth in tenant demand over the last three months recorded by RICS was in London and the east of England.

RICS spokesperson James Scott-Lee said: "Supply of lettings property continued to fall in the three months to July although at the slowest pace in a year which amid rising tenant demand has helped propel rents higher for the second consecutive quarter. Existing landlords keen to expand their portfolio may still be struggling to access the necessary finance despite improved market conditions.”
The figures also show the extent to which landlords are reluctant among to sell. Just 4.1% of landlords said they planned to sell their properties when their current tenancy agreement comes to an end.

Figures released by LSL Property Services earlier this month told a similar story - see Home News 19 Aug 2010.

LSL said that rents rose by 0.5% on average during July putting the average UK monthly rent at £676, which is 2.3% higher than a year ago.

 

By Joe Lepper 

See also: Asking Price Index, House Prices and Trends by Town and Postcode, Mortgages, Rental Search, Renting Guide

 

 

 

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