Be wary of further rate rises in 2022

It’s a staple of the property market conversation. What will the coming year mean for values and overall activity?

It’s fair to say that 2022 won’t be anything like 2021, with its Stamp Duty holiday continuing from 2020 to bring a frenetic rush as September 30 saw the tax break finally end.

But there’s more to bear in mind than that tax break and the soaring house prices, coupled with frenetic bidding to be the successful winner as an effect on the market infected by Covid-19 reaction.

It was all a bit too feverish to be healthy and we really don’t want to see a long Covid malaise. In terms of price inflation, I don’t think we will. But there is another effect from the economic rescue package and that’s growing inflation.

It has already brought us one interest rate rise, the first in three years, as rates went up from 0.1 per cent to 0.25 per cent after sinking to the historic low of 0.05 per cent during the aftermath of the economic crash of the late noughties.

What’s of more concern is the threat of further rate rises during 2022 and people must budget for this when they consider their next home move, or maybe their first entry into home ownership. These first-time buyers are the ones most likely to be on a tight financial rein and I would urge them to exercise caution as they work out what they can afford. If interest rates rise, so must mortgage repayments. While it may be tempting to look for a lender with relaxed criteria when assessing applications, remember that choices now can have a financial impact for decades.

One lender is reportedly offering seven times earnings for one borrower and more standard terms for the second partner in a couple on a 40-year fixed rate deal.

Look at that last figure and you realise you are in it for the long haul, especially as fixed rates can carry early exit penalties that can add up to quite a significant sum. True, they can be added to the next mortgage. But that makes them even more expensive as they incur rising interest rates for the life of that mortgage too. As many sellers are moving up rather than down in size, the price of what they aspire to is rising at the same percentage rate as what they are selling. That means an ever-increasing gap. So be careful what you wish for. Rampant price inflation hurts everyone except a lucky few getting off the treadmill.

And factor in rising interest rates when you work out affordability, no matter whether an ‘irresistible’ mortgage offer may tempt you to think the risk is worth it.