Mark Carney, Governor of The Bank of England has suggested that interest rates may start to increase, possibly later this year. We asked property experts Richard Bernstone, Martin Bikhit and Alex Newall what effect such an increase in interest rates might have on the London property market.
Richard Bernstone, Director at Aston Chase
“We have all been used to the record low base rate of 0.5% for some six years, so naturally any increase to this will have some initial negative impact on homeowners/mortgages. However, increases will be modest possibly 0.25% – 0.5% and the indication is that the base rate may increase to around 2% over the next two years where it will remain for some considerable time.
Ultimately, any strong economy will need to see interest rates higher than where they currently are, and this will have no negative impact on the Central London property market – let’s not forget that pre Lehman’s collapse in 2008 (when the market last peaked) base rate was 4.75%. In fact higher interest rates will benefit savers whose savings/pensions are often linked to institutions investing in property, so in essence following any initial negative concerns, buyers and borrowers will quickly adjust and the London property market will in my opinion continue to go from strengthen.”
Martin Bikhit, Managing Director at Kay & Co
“Given mortgage rates are generally extremely low at the moment and banks are competing for business a slight rise will not have a significant impact on the London market.
Supply in PCL is still relatively restricted and the few quality properties that are available at each price point in each postcode are still attracting significant interest from buyers.”
Alex Newall, Managing Director at Hanover Private Office
“A rise in interest rates is not likely in the immediate – mid-term future. When a rate rise does happen it will be slow and gradual, increasing the cost of borrowing. International buyers buying high end property may want to fix their mortgage now into a historically very low rate of 0.5%. A rate rise should be seen as a positive sign of a stable and growing UK economy.”
Mark Carney has however given an indication that interest rates will go up in the UK at the beginning of 2016, following the USA’s lead. This is another positive indication that these two economies are strengthening. In the UK a 0.25% rate rise would not harm the markets; prices should remain stable with gradual rates of growth.”