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Interest rate rise forecast before Christmas
Will Andrew Bailey, the Governor of the Bank of England raise its lending rate from 0.1%? The smart money is unfortunately saying yes. And it might be this side of sitting down and eating our turkeys at Christmas. That is if the supply chain holds up and there are enough to go around.
Mr Bailey has gone on the record recently to say, “monetary policy cannot solve supply-side problems but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations.” In other words, to stem inflation they are raising the interest rate.
The Financial Times reported that: “A majority of people trading on the overnight index swap market, which foreshadows the BoE’s interest rate, expect the first rise from 0.1 per cent to 0.25 per cent at this year’s December meeting.”
A more explicit indicator of what is really going on is to look to the bond market, where two-year bonds spiked in value. This is a sign that borrowers are going to be paying more for their borrowing in the near future.
The biggest lever that stops the housing market has always been market sentiment focused on the cost of borrowing. If mortgage interest rates climb, fewer people buy property. The other outcome is that often the relative value of property drops.
In 1988, two million properties in the UK changed hands, super-charged by the Chancellor of the Exchequer announcing that a tax loophole MIRAS was closing in September 1988, causing a massive surge of activity in the housing market.
Then, almost overnight, the next four years saw a moribund housing market with house prices dropping by over 20% in 1989.
Now, in 2021, an entirely different Chancellor of the Exchequer has created yet another super hot property market by tampering with the SDLT mechanism. With a hard stop date at the end of September, no less than three weeks later it looks like interest rates may well rise.
The next big date for the housing market is the 27th of October, the day that Rishi Sunak unveils his budget. It may well be the most significant budget given by any Chancellor in recent times. For my part, I just hope that he realises what his actions have done so far, and the downside to a slow or non-functioning housing market.
After all, there isn’t much point chanting “build back better” and making claims that 300,000 new homes a year will be built under this Conservative government in the levelling up process if no one is going to buy them. The cost of mortgages is simply too high and sale prices are becoming retrograde.
Rightmove reports bumper housing market, but for how long?
For two decades I have read with heightened interest the detailed analyses put forth by Rightmove, the UK’s largest real estate portal, which has a huge amount of data given the volume of inventory processed on the site.
Despite the vast wealth of data, it’s always disappointing that Rightmove’s observations are a retrospective review, rather than a prophetic look forward. Regardless, the overview can make for an interesting read.
For those unfamiliar with its overview, it is freely available at the base of the Rightmove landing page each month in the House Price Index section. I’m intrigued to see if interest rates rise and if the steam does come out of the housing market.
The Rightmove index for October seems to be betting the other way.
Andrew Stanton is the founder of Proptech-PR, a consultancy for Founders of Proptechs looking to grow and exit, using his influence from decades of industry experience. Separately he is a consultant to some of the biggest names in global real estate, advising on sales and acquisitions, market positioning, and operations. He is also the founder of Proptech-X Proptech & Property News, where his insights, connections and detailed analysis and commentary on proptech and real estate are second to none.