Interest rate rise would put brakes on property market

LAST week we looked at how blue-collar wage rises were fuelling the property market. Here we look at it will affect the market going forward.

The Brits who always had the biggest problem jumping on to the property ladder were not just the 20 somethings, but also middle-aged blue-collar workers.

With blue-collar wages stagnant over the last two decades, and accelerating house prices, it was much tougher for them to save up a deposit for a mortgage.

Yet with the Government’s recent five-percent deposit mortgages and more disposable income, some might decide not to spend the extra on going out and holidays and buy their first home instead (because most people want to own the place where they live).

Overall, if this increase in blue-collar wages is across the board, then this could be one of the greatest things to happen to the Newbury property market in a long time.

It is certainly long overdue. Since the millennium, wages at the bottom end of the pay scale have deteriorated, while the professional white-collar middle classes have done much better.

The disparities between both classes/workers are imbalanced and harmful to the economy and society as a whole.

But what is the real story behind the headlines?

One school of thought is that some fear these wage increases will fuel hyperinflation (and in turn, interest rates will have to rise to counter that).

As I have mentioned many times in my articles, the last thing we need is a rise in interest rates as mortgage rates will increase accordingly.

A rise in interest rates will put a massive brake on the property market – which is not good for anyone.

Also, there were still 1.9 million people on furlough at the end of September.

Not all of those people will go back to their original jobs, meaning they will need to find a new job, so the pay pressures could just as easily diminish as employment bottlenecks clear.

Also, the 8.3-per-cent wage rise is based on a year-on-year figure (ie a snapshot of now versus a year ago) and therefore the headline figures have been profoundly distorted by the large numbers of blue-collar workers on furlough in 2020 when they were on 80 per cent pay.

The Office for National Statistics has said that, accounting for some of the distortions caused by the pandemic, real wages for blue-collar workers are more likely 3.5 per cent up.

Finally, as with all things, the devil is in the detail.

The newspaper headlines reporting the over inflated pay rises this spring are true.

However, in truth these wage rises were focused on professions with specialist skills.

For example, whilst wages for HGV lorry drivers have risen by double digits, pay rates for courier drivers have remained stagnant.

At the same time, wage growth for white-collar jobs is almost at zero for yet another year.

To conclude, there are interesting times ahead for everyone involved in the property market.

I do not profess to know all the answers, however, I do have my own opinions.

Whether you are a first-time buyer, second-time buyer, homeowner, landlord or tenant and would like to pick my brains on any aspect to do with the Newbury property market, please do not hesitate to drop me a DM, give me a call or send me an email.