Interactive Investor

Interest rates preview as market awaits Bank’s decision

28th July 2023 11:01

by Myron Jobson from interactive investor

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interactive investor also comments on HMRC monthly property transactions.

interest rates per cent sign

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Property sales volumes ticked higher in June, demonstrating the remarkable resilience in demand for homes in the face of an acute affordability squeeze resulting from mortgage rates surging to levels not seen since the financial crisis - the mini-budget blip aside.

“This does not necessarily suggest that the property market is turning. The seasonally adjusted estimate for transaction volumes shows they were 15% lower than June 2022. With higher mortgage rates, the overall cost of purchasing a property goes up, making it less affordable for many. As a result, many potential buyers have put their plans to buy a home on the back-burner until such a time when they can make the numbers work - or decide not to enter the market at all due to the higher expenses. But there is still a cohort of buyers who are able to move up the property ladder despite the harsh market conditions.

“The Bank of England is expected to keep pressure on the mortgage market by ushering through another rate rise next Thursday in a bid to tame stubbornly high inflation. However, the expectation of a lower-than-feared interest rate peak to tackle inflation could be enough to keep the cost of fixed-rate deals on the downward trend, which could help elevated property transactions – but there are no guarantees.”

What next week’s Bank of England interest rate decision could mean for mortgage holders

Myron Jobson says: “Those on a fixed-rate mortgages deals that aren’t coming to an end in the near future can breathe easy for now, as the immediate effects of an interest rate rise won't knock on their door. Fixed-rate mortgages provide a temporary sanctuary from the storm, offering borrowers a set interest rate for a fixed period. However, it's important to keep an eye on the horizon, as once that shelter expires, you might have to face the music of higher rates when refinancing or renewing your mortgage.

“But there is no such reprieve for the 2.2 million homeowners on variable rate mortgages, which are tied to the Bank of England’s base rate. They will continue to feel the full brunt of the expected increase in interest rates. They are likely to face higher costs for some time to come.

“The mortgage market remains in a state of flux. For those seeking to buy or remortgage, it is worth consulting a mortgage adviser to explore your options.

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