With the increase of the UK’s base interest rate from 0.25% to 0.50%, how will this impact UK house prices? Evidently, any increase in the base interest rate will lead to increased monthly mortgage payments. Arguably, the +0.25% increase is only marginal and will be manageable for most. However, Savills predicts the Bank of England’s base interest rate will increase further to 2.25% by 2022. With this viewpoint in mind, the future outlook for buy-to-let (BTL) landlords seems unfavourable; as higher interest rates will hinder profit margins and will reduce the appeal of investing in property altogether.
Moreover, Savills anticipates average house prices in London will fall by 1.5% in 2017; 2% in 2018 and eventually will flatten out to 0% in 2019. For investors who “flip” property (buy low, sell high) this may make property trading more difficult, riskier and less profitable. Using the most recent statistics provided by the Office for National Statistics, the average house price for August 2017 in London stands at £484,000 – in contrast to the UK average of £226,000. Interestingly, the average deposit paid by first-time home buyers in regional areas such as the North West is £19,000. Comparatively, an average deposit of £99,753 is required for a first-time home buyer seeking a property in London!
Clearly, any reduced growth of UK house prices is welcomed by first-time home buyers. For property investors/traders, the reduction of house prices will make property a less attractive investment avenue over the upcoming years.