Low­est ever in­ter­est rates are both good and bad for UK hous­ing mar­ket

Financial Mirror (Cyprus) - - FRONT PAGE -

And so it has hap­pened. In­ter­est rates in the UK have been re­duced to just 0.25%, the low­est ever and some ex­perts, eco­nomic and fi­nan­cial, think they could come down even more to 0.2% or 0.1% if there are fur­ther signs that a Brexit is dam­ag­ing the econ­omy even more than it al­ready has.

The big ques­tion is whether or not this is good for the hous­ing mar­ket. It cer­tainly should be, with some home own­ers on track­ers al­ready see­ing the lower rate be­ing passed on by their lender and the ex­pec­ta­tion that those on fixed rates can choose from even bet­ter deals when they come to re­mort­gage.

It comes at a time when house price growth is slow­ing and ex­perts are pre­dict­ing that they will start fall­ing in the sec­ond half of this year due to the de­ci­sion by the UK to leave the Euro­pean Union. In­deed, ac­cord­ing to S&P Global, the UK will be the only ma­jor player in the EU to see house prices fall.

This all points to good news for first-time buy­ers, or does it? Lower in­ter­est rates and prices fall­ing are cer­tainly good news for first-time buy­ers. But those first timers, re­garded as the lifeblood of the hous­ing lad­der, need to save for a de­posit.

Lower in­ter­est rates will hit savers, in­clud­ing those sav­ing for a de­posit to buy a house. Bor­row­ers also re­main sub­ject to the rig­or­ous af­ford­abil­ity checks in­tro­duced in the Mort­gage Mar­ket Re­view (MMR), which pre­vent lenders from ad­vanc­ing sig­nif­i­cantly more loans to first-time buy­ers.

So, the win­ners will be re­mort­gagers and those on tracker rates, but those most in need, the first time buy­ers, will con­tinue to find con­di­tions chal­leng­ing from a fi­nan­cial per­spec­tive.

For first-time buy­ers there is also the is­sue of choice. The UK is des­per­ately short of hous­ing and this short­fall com­pared to de­mand has been one is­sue that has contributed to ris­ing prices. So-called Starter Homes are not suf­fi­cient to meet de­mand and it will be some time be­fore the ini­tia­tives be­ing in­tro­duced by the gov­ern­ment will fil­ter through to ac­tual homes ready to buy.

In Lon­don, the sit­u­a­tion is even more acute with first­time buy­ers hav­ing to save for much higher de­posits and bor­row more than those else­where in the coun­try. No set of ini­tia­tives or new poli­cies are go­ing to change that. In­deed, re­cent re­search sug­gests that young fam­i­lies, or those plan­ning a fam­ily, are in­creas­ingly mov­ing out of Lon­don to com­muter towns in search of lower prices, but if this con­tin­ues on a large scale, it will just af­fect prices and de­mand in these lo­ca­tions too.

Then there is the pos­si­bil­ity, which has been de­nied by Bank of Eng­land Gov­er­nor Mark Carney, but not ruled out by eco­nomic com­men­ta­tors, that the rate could even be brought down to 0%. That could hit first-time buy­ers sav­ing for a de­posit even harder.

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