What would an increase in interest rates mean to residents of East Grinstead?

By HP News

 

In the residential property world, the most important macroeconomic indicator we’re obsessed with is interest rates. Interest rates are the main tool the government uses to cool down the market when it shows signs of overheating. They have a massive impact on the housing market because they determine what your mortgage costs every month.

 

In the last housing cycle (between 2000 and 2008) interest rates steadily rose from about 4 per cent to nearly 6 per cent and then fell to 0.5 per cent after the credit crunch, falling again to 0.25% after the Brexit vote. They were lowered in order to stimulate the economy by keeping money out of savings accounts and into circulation.

 

But what would happen to homeowners in East Grinstead if interest rates rise? We should start by saying we don’t expect the Bank of England will do anything to risk the economy during Brexit, however there is a chance that the increased prices manufacturers have to pay owing to the low value of the pound might turn into inflation and require a rate rise.

 

One of the fundamentals of economics is that the value of a currency is a measure faith in its home country’s economy. When the value falls, imports becomes more expensive (and vice versa). We import a lot to the UK and this means the costs of raw materials goes up for manufacturers – which could lead to price rises.

 

Here is one possible scenario. In RH19 the average price of a 3 bed home is £327,700. On a 65% mortgage with a 4% rate this will cost about £923 per month once we add in the fees and flatten out the amortisation. If the base rate rose to 6% (the highest level since 2000) then according to our calculations that would translate into an extra £355 per month.

 

So the bottom line is that we don’t foresee anything happening to interest rates any time soon, and even if they did rise, the increased monthly payments would be unlikely to unsettle the market dramatically – and inflation would erode debt. If you want to talk about buying or selling a home (now is a fantastic time by the way), give us a call.

 

Sales by house type over recent years

 

The rate at which properties are sold in the market is probably the best indicator of what we in the trade call ‘buoyancy’. In this chart we show the number of properties which have been sold each year since 2007. The first thing you’ll notice is the impact of the credit crunch at the start of the period which lead to a sudden dip in transactions all across the country. You can also see a quite high level of volatility, but this is a typical outcome of seasonal patterns.

 

Change in prices over the last two years

 

This chart shows how the relative prices of the major house types have varied over recent years. By clustering the columns you can see interesting patterns developing over time.

 
 

Breakdown of age bands

 

The split of the population by age groups has a big effect on the local housing market. For example, the demographic profile affects prices but more importantly the tenure mix and the rates of sales. The patterns you can see here gives you a good insight into the profile of local residents, and the sorts of people who are likely to be in the market for buying homes.