Current Interest Rates
As of mid-2024, the Bank of England has set the base interest rate at 5.25%, a significant rise from the near-zero rates seen during the pandemic. This increase aims to control inflation, which had surged due to various economic shocks including the pandemic, the Ukraine war, and a labor shortage. Here we look at current UK interest rates and their impact on the property market.
UK interest rates impact on Property Market
High interest rates have several effects on the property market:
- Increased Mortgage Costs: Higher interest rates mean higher mortgage rates, making it more expensive for buyers to finance homes. This can decrease demand, leading to slower growth in property prices or even price reductions in some areas.
- Reduced Affordability: With higher monthly mortgage payments, fewer people can afford to buy homes, slowing down the property market. This particularly affects first-time buyers and those looking to upgrade their homes.
- Investment Yield: For property investors, the net yield is affected by higher interest rates. The cost of servicing debt increases, which can reduce the overall profitability of property investments.
- Transaction Volume: Higher interest rates tend to reduce the volume of real estate transactions. Potential buyers may delay purchasing decisions due to higher borrowing costs, leading to a slower market turnover.
Rental Market
During periods of high interest rates, first-time buyers may find it prohibitive to get on the property ladder, leading them to rent for longer periods. This sustained demand is beneficial for landlords, maintaining a strong rental market.
Refinancing Options
Investors facing higher mortgage rates should consider refinancing to reduce costs. Asian investors can access UK finance for mortgage refinancing. For more details, refer to our blog post on UK Buy-to-Let Mortgages for Asian Investors.
When Will Interest Rates Drop?
The Bank of England has indicated that interest rates will only be reduced once they are confident that inflation will remain at their 2% target. This decision is reviewed approximately every six weeks, with the next review scheduled for August 1, 2024. While inflation has started to decrease, the exact timing of any rate cuts remains uncertain and will depend on economic conditions. For more detailed insights, you can visit the Bank of England’s explainer here. We have partnered with very experienced mortgage brokers who can assist you with refinancing or new mortgages. They are based here in Singapore, making it easier for you to consult with them.
