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The housing market reality behind the rate rise hype – SDL Group

  • 02/08/2018
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How meaningful would an interest rate rise be for the property market? Many commentators have pinpointed today as the most likely date for interest rates to rise from 0.5% to 0.75%.


Of course, there were similar predictions back in May, but a combination of continuing Brexit uncertainty, disappointing economic data and a decline in inflation, meant that the ‘dead cert rise’ never materialised.

There are many competing opinions as to whether an increase will happen this time round.

Back in June, the Bank of England (BoE) Monetary Policy Committee (MPC) voted 6-3 in favour of holding rates.

One person switching his vote to call for a rise was chief economist Andy Haldane, which was a significant move.

More recently markets have been pricing a 90% chance of a rate rise, a figure underpinned by BoE deputy governor Ben Broadbent, who was somewhat combative when questioned about his own vote.


Rate rise delay

All of this does not actually highlight today as a precise date though and other data would actually suggest that a rise is still a few months off.

Poor retail sales data for June, the falling pound and the collapse of high street names, including Poundworld and restaurant group Gaucho, have all created uncertainty.

This has not been helped by the Consumer Price Index measure of inflation either, which in June came in at 2.4%, down on the forecast of 2.6%.

If I were to nail my own colours to the mast, I would say that a rise in November, or even in 2019, is now more likely.

Of course, I may be wrong, just as I incorrectly predicted that Derby County would get promoted.

However, regardless of which commentators are right or wrong, it’s important to consider the real impact of all of this on the sector that we work in.

Looking at SDL and in particular our mortgage services division, we are currently seeing a record number of mortgage applications – up 16% year-on-year.

The appetite for mortgages is very much there and shows little sign of abating. The mortgage market is by no means living in the shadow of a looming interest rate rise.

While the very threat of an increase does, of course, tend to generate more activity in terms of borrowers seeking fixed rate certainty, it’s important to note that our own increase in business levels encompasses remortgage, buy to let and traditional purchase applications.


Real housing market barriers

Consumers expect transparency and a lot of the discussions around rate rises have had undertones of ‘act now’, and some may view that as unhelpful.

The reality of the situation is that a rise of 0.25% will be largely insignificant to the typical borrower and should not have a meaningful financial impact.

We all know that lenders’ affordability calculations and lending restrictions over the past few years have verged on draconian, and this has meant that borrowers can tolerate some movement in rates without any real threat.

Whatever the decision of the MPC, the cost of borrowing is still exceedingly low and is still among the cheapest since records began.

In many respects, it would be more beneficial for us all if industry commentary switched from the hype surrounding interest rates to the real barriers that are currently impeding a free-flowing housing market – and that is supply and demand and the level of initial deposit required.




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