Ok, the BoE were not the quickest off the mark to crank interest rates upwards in 2021/22 when the early warning signs of inflation were apparent, as demand rapidly picked up unexpectedly after Covid. But I think it is folly to increase them this week without giving the last thirteen increases a chance to make their full effect felt.
Fixed rate mortgages were first offered in 1989, in the middle of the then recession, and they have become very popular ever since. Particularly as interest rates had rock bottomed in 2020.
This effectively means that the effect of high interest rates will be less immediate and will probably take 12-18 months to fulfil their efficacy.
Relentlessly increasing them before this has had a chance to work, is like double dosing a patient with medicine that could exacerbate the harm done from the ailment.
Me thinks that the committee of the BoE have a twitchy finger on the tiller of the ‘good ship, UK Economy’ and maybe a more sanguine approach to the outlook would be well advised.
Undoubtedly, we are going to see more and more casualties that emanate from the effect of the credit crunch, and this will continue unabated until inflation and rates come down over the next few years.
Already, the direction of movement of the inflation rate is southwards albeit a little too slowly for some observers however, I think that time, the great healer, needs to play its part before we become too ‘trigger happy’.
The lenders are trotting out some interesting fixed rate mortgages which anticipate the downward trend in interest rates in a year or twos time and this will take the pressure off house owners and buy-to-let landlords, who are struggling at the moment with a high cost of borrowing not assisted by the cost-of-living crisis.
I personally, don’t believe that there will be a cataclysmic drop in values of residential property, as I think that they will probably ease by 5-10% over the next year to eighteen months, but not more than this.
What may underpin the market is a noticeable and persistent limited supply of properties available to buy, which should certainly serve to stabilise values.
Prior to any recession, in the past, there has been a noticeable increase in homes for sale accompanied by shrinking demand, and that is where values have subsequently fallen, precipitously. There are no signs of this trend at the moment.
The middle classes are considering selling their homes before the full negative effect of a change of government next year is felt, as they don’t want to be trampled in the stampede which could take place if the electoral polls continue to point towards a Labour Party victory in 2024.