Rising interest rates and soaring energy prices are contributing to the cost of living crisis.
But what effect is all that having on the housing market?
I asked members of the Norwich & District Association of Estate Agents to share their views.
Are higher interest rates likely to drive property prices up or down?
“Higher interest rates always reduce property price growth,” says Nick Taylor of Hadley Taylor. “This does not mean that house prices will fall; it just means they will rise at a slower rate – and this would be a good thing for young people trying to get on the property ladder.”
Frank Davey of Allgood & Davey agrees. “As rates rise and qualification for mortgages gets tighter, expect some touch on the brakes, but with more buyers than sellers there is still an upward pressure on prices locally. Expect some incentives from new home developers to help maintain their price premium.”
Jan Hÿtch of Arnolds Keys says that it is more likely that the general cost of living crisis will have an effect. “When combined with increasing inflation, rising interest rates do make people stop and think about the commitments they are taking on, and how these factors might affect them in the medium term.
“However, historically, interest rate rises combined with inflation at the levels we are currently experiencing have had the effect of slowing house price growth, rather than driving prices down.”
Higher interest rates are likely to reduce property price growth – and particularly growth which has soared during the pandemic
– Credit: Getty Images/iStockphoto
How will mortgages be impacted? Does it depend on what type of mortgage you have?
Yes to both questions, says Andrew Fox of Pymm & Co. “If you have a fixed rate scheme that is coming to an end shortly, then there is no doubt there will be an increase in your monthly payments.
“Another concerning factor is where the base rate will be in two or three years if you have a longer-term fixed rate. I would anticipate that it will certainly be higher than the current rate, and therefore your monthly repayments could be significantly higher.”
Affordability is the issue for Alex Parish of Whittley Parish. “As interest rates and mortgage rates increase, this can have an effect on a house hunter’s affordability – for most affordability will decrease.”
“Increases in interest rates will allow lenders to increase their rates too,” says Frank Davey. “Shorter initial rate periods and higher initial fees will make it difficult to compare like for like, but the direction is up rather than down.”
Jan Hÿtch, residential partner at Arnolds Keys and chair of the Norwich & District Association of Estate Agents
– Credit: Arnolds Keys
What do higher interest rates mean?
“If rates continue to rise, people who already have mortgages, who have borrowed according to the rates and their incomes at the time, may need to sit down and look at their outgoings to see where savings could be made,” says Jan Hÿtch.
“Those still looking to buy for the first time may find new homes sellers offering incentives to help soften the blow of higher mortgage payments, and sellers of second-hand homes may be more willing to negotiate.”
Budgeting will be crucial, according to Andrew Fox. “Repayments are going to be higher, and with the cost of living increasing, it is very important for first time buyers to work to a budget with some flexibility, bearing in mind that inflation seems likely to increase further over the coming months.”
RMG Photography – July 2017
Savills – Staff portraits – 2017.
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Will people still want to move?
Ben Rivett of Savills says: “The desire to move home is showing no signs of slowing. Our own research shows that 77pc of buyers said that recent interest rises had no impact on their budget, reflecting the high levels of equity at the top end of the market. However, some buyers are obviously feeling the squeeze on finances more than others.”
Alex Parish agrees. “Current analysis of the 2022 market is that demand is still outweighing supply.
“Many property portals such as Rightmove have reported an increase in buyer activity compared with the same period in 2021, with signs of more properties coming onto the market within the same period. As interest rates have only increased by 0.25pc, the rise is unlikely to deter market activity.”
There are lots of ways you can make your property more energy efficient – some of which are quick fixes and some of which are more costly
– Credit: Getty Images/iStockphoto
Can homeowners do anything to help soften the blow of the rising energy price cap?
“There are plenty of ways in which homeowners can improve the energy efficiency of their property,” says Nick Taylor. “Some of these are quick fixes with minimal cost, and other measures involve a significant investment. Air source heat pumps are unlikely to be affordable for many and may be unsuitable for the majority of existing housing stock.”
“If you are pension age or receive benefits, grants for additional insulation may help if it’s not done already,” says Frank Davey. “But we are in limbo at the moment – the government hasn’t yet thought this through, there is not enough electricity to replace gas and oil, and heat pumps won’t fit everywhere.
“And don’t mention electric car chargers! We may well ask, how do you insulate walls without changing the character of a house?”
Impartial independent advisers could help you to assess a potential property purchase for its energy efficiency
– Credit: Getty Images/iStockphoto
What should buyers look for?
“Look at the EPC rating which should be on the property details, and see the current and potential rating” says Jan Hÿtch.
“Look for what has been done by previous owners to upgrade a property you are looking at buying, such as solar panels, double or triple glazing, and ground or air source heat pumps in place of traditional boilers where it has been possible to do so.”
“As well as taking a good look at the EPC, there are also impartial independent advisors available to help anybody looking to save energy and cut the cost of living,” says Andrew Fox.
Period properties continue to be the most sought-after – closely followed by new builds, says Ben Rivett
– Credit: Getty Images/iStockphoto
So is it better to buy new?
“With energy bills predicted to rise by almost £700 a year, 71pc of respondents to our survey said that EPC ratings were important in their home buying decision, with 19pc saying it is very important” says Ben Rivett.
“But despite increased concern for their home’s energy rating, Georgian and Victorian properties continue to be the most sought after, closely followed by new build.”
Nick Taylor is unconvinced that new homes are always more energy efficient. “One would assume that buying new would guarantee greater energy efficiency. While this is generally the case, it is very disappointing how poorly insulated new homes are.
“Given advances in building technology it should be possible to buy a new-build home which requires very little heating at all, but unfortunately this is not the case.”
In any case, the reasons people buy an older property are varied, according to Jan Hÿtch. “If you’re determined to own a pretty flint cottage with roses around the door, inglenook fireplaces and log burners, you’re already resolved to invest more money in owning your home than the equivalent amount of accommodation in a modern home.
“So higher heating and running costs are part of that decision making process, and it is therefore unlikely that the relative additional costs of higher energy costs would woo you away from your dream home to something more modern and conventionally low cost to run.”
More information about the Norwich & District Association of Estate Agents can be found at its new website, at ndaea.co.uk
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