What would more rate rises mean for Oakwood?

Posted on June 1st, 2018.

In the residential property world, the most important macroeconomic indicator we’re obsessed with is interest rates. Interest rates are the main tool the government uses to cool down the market when it shows signs of overheating. They have a massive impact on the housing market because they determine what your mortgage costs every month.

In the last housing cycle (between 2000 and 2008) interest rates steadily rose from about 4 per cent to nearly 6 per cent and then fell to 0.5 per cent after the credit crunch, falling again to 0.25% after the Brexit vote. They were lowered in order to stimulate the economy by keeping money out of savings accounts and into circulation.

But what would happen to homeowners in Oakwood if interest rates continue to rise? We should start by saying we don’t expect the Bank of England will do anything to risk the economy during Brexit. However there is a chance that as inflation and economic growth pick up, we might well see interest rates continue to rise from their historic lows and start to return to pre-credit crunch levels.

One of the fundamentals of economics is that the value of a currency is a measure faith in its home country’s economy. When the value falls, imports becomes more expensive (and vice versa). We import a lot to the UK and this means the costs of raw materials goes up for manufacturers – which could lead to price rises.

Here is one possible scenario. In Oakwood, the average price of a 3 bed home is £630,000. On a 65% mortgage with a 4% rate this will cost about £1,800 per month once we add in the fees and flatten out the amortisation. If the base rate rose to 6% (the highest level since 2000), then according to our calculations that would translate into an extra £700 per month.

So the bottom line is that even though more rate rises look very likely this year (August seems likely) the increased monthly payments would be unlikely to unsettle the market dramatically — and inflation would erode debt. If you want to talk about buying or selling a home (now is a fantastic time by the way), give us a call.

“As inflation and economic growth pick up, we might well see interest rates continue to rise from their historic lows”

Sales by house type over in recent years
The rate at which properties are sold in the market is probably the best indicator of what we in the trade call ‘buoyancy’. In this chart we show the number of properties which have been sold each year since 2008

 

Change in prices over the last three years

This chart shows how the relative prices of the major house types have varied over recent years. By clustering the columns you can see the interesting patterns developing over time.

Breakdown of age bands

The split of population by age group has a big effect on the local housing market; the demographic profile affects prices, but more importantly the tenure mix and the rates of sales. The patterns you can see here gives you a good insight into the profile of local residents.

If you want to know more about the local property market in Oakwood and Southgate, then please email me on chris@ashmoreresidential.com  or visit the Oakwood and Southgate Property Blog  www.oakwoodpropertyblog.com

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If you are looking for an agent with experience that can help you find the right purchaser or tenant for your property, then contact me to find out how we can get the best out of your home or  investment property. You can email me  chris@ashmoreresidential.com or give me a call on 020 8366 9777  Pop in for a chat – we are based at Ashmore Residential, 5 Netherby Gardens, Oakwood, Enfield, EN2 7PA . There is plenty of parking and the kettle is always on.

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