17th May 2022

Buy now, pay later-IPlace Global CEO Simon Bath explains why now is the best time to buy a home

Simon Bath comments:

"The property market is intimidating enough for first-time buyers to get on the ladder. Now, the threats of inflation triggered by higher prices in energy, goods and services, coupled with pressure from rising interest rates and mortgage prices, could be set to put the brakes on the housing market growth.

The Bank of England warned that inflation would likely soar to 10.2% by the fourth quarter with threats of a British economic recession on the cards. These projections could see an interest rate rise so large that first-time buyers will still pay more for a property, even if prices fall.

The effects of rising interest rates are making mortgage prices more expensive. As a result, experts have warned that property prices are set to cool in the coming months– especially because British households are currently struggling with the biggest drop in disposable income since 1964. In addition, a 40% increase in energy prices in October is set to also contribute to the plummeting demand for properties.

The fall in demand is set to slow down the rapid growth of current house prices; however, while prices are set to drop, mortgage costs are also rising at a pace fast enough to supersede this.

The most recent rate adjustment to 1% means that borrowers on a 25-year repayment mortgage at a standard variable rate of 4.24% are paying an extra £756 a year. If interest rates move up to 1.75%, borrowers would be paying an additional £3,108 per year.

As interest rates are likely to reach 3% by next year–which will significantly push up mortgage rates–demand will likely shrink and cause house prices to fall by around 5%. First-time buyers are set to be most affected by this, as they will be forced to pay significantly more on mortgage prices.

The Central Bank has warned that inflation could reach double digits by the end of year. This news means that the younger generation–in particular first time homebuyers– will be most affected by rising rates. This is because first-time buyers often have a smaller deposit and need the most borrowing power–which will undoubtingly mean that borrowers will be scrutinised over their ability to afford a mortgage when applying to lenders. That being, said, many lenders will continue to offer rates for the broad spectrum of home movers.

An increased rate move could add hundreds of pounds a year to the average mortgage bill for those on the standard variable rate–especially in an arena with such high demand and low supply. The Bank of England base rate has just reached 1% for the first time in thirteen years, with expectation that this could rise above 2% in the coming months. For many homebuyers, this could still be a relatively cheap level of borrowing–especially given the Central Bank's projections–which potentially makes it an extremely attractive option versus the ever increasing average rental levels seen in the market."

iPlace Global Trends(8 articles)