The news hardly came as a surprise. Everyone was expecting the Bank of England to raise interest rates for the first time in a decade. However, opinion is divided on what this means for the market.
In the near-term, it probably means very little. After all, the rise is merely a reversal of last year’s rate cut. “I am sure that for first time buyers and those trying to get a foot on the ladder that this change will have a marginal impact on them, however I don’t expect to see any Impact this will have on the London property market,” said Martin Bikhit, Managing Director at Kay & Co commented. “As rates continue to rise, we may see some effect but this will be a gradual change over a long time period. It is expected that rates will rise to 2% by 2021.”
The impact on the property market’s long-term outlook is a subject more worthy of debate. “The question is, does this rate rise signal the start of a series of future base rate increases?” asked Simon Gammon, Managing Partner, Knight Frank Finance. “While it could be actioned over a long period of time, is the country finally starting to move towards a normalisation of the base rate away from ultra-low levels? Libor and swap rates, the money market rates which determine fixed-rate pricing had risen in anticipation of the rate rise, and this may continue if further rises are anticipated.”
This, however, has limited meaning for housebuilders, many of whom posted record results for 2016. While low interest rates have helped sustain market sentiment, there are more powerful factors driving the housebuilding industry.
“The parameters supporting growth are strong as there continues to be an imbalance between the supply and demand for high quality new homes,” said John Watson, Executive Chairman of Bellway. “The availability of sustainable mortgage finance is also good, supported by a responsible lending environment and the Government’s Help to Buy scheme.”
Grainne Gilmore, Partner, Head of UK Residential Research, Knight Frank, added, “Even if there are two more rate rises in the next year or so, the base rate will still be at a notably lower rate than seen in any other period of history since the Bank records started in 1690.
“However, if there is another rate rise in the coming months, confirming the country’s move into a rate rise environment, this may have a wider effect on sentiment in the market.”
The National Federation of Builders (NFB) believes that the decision will help construction SMEs chase late payments across their supply chains. The Late Payment of Commercial Debts Regulations of 2013 allows companies that are owed payments to charge interest at 8% of the debt plus the Bank of England’s base rate.
Richard Beresford, chief executive of the NFB, said, “The interest rate rise will give SMEs more leverage when chasing late payments, but there is still some way to go. When the Bank of England previously cut interest rate in 2016, we asked the Government to increase efforts to tackle late payment more aggressively. Construction continues to have the worst payment record of any industrial sector, with SMEs owed more than £30 billion in unpaid invoices.”
“SMEs make up for more than 99% of the construction industry. This is an opportunity for SMEs to test the small business commissioner who can deal with late payment claims, confidentially if required.”
Credit ratings agency Moody’s just about summed it up when it said: “house price growth and the market’s overall stability have been incredibly resilient despite the EU vote and a snap general election. A few quid added to the average mortgage repayment will not deter this growth in the medium to long term.”
Mortgage costs rising a shade above historic lows will do little to dent the UK’s fundamentals, which still exhibit robust demand and extremely limited supply.