Inflation is at 4%, so the latest figures reveal today.
Ordinarily, interest rates would rise in order to stem this elevated cost of living. Higher money costs equal less spending and therefore lower demand. Consequently prices are not upwardly pressured.
I’m not sure, given the current fragile economic climate, that the Bank of England will vote to raise rates in the near future though.
But if Mr King and his cohorts did hike them to deal with inflationary pressure, it might just be what the housing market needs.
You will probably be shouting at your PC screen at this point ‘Hold on! Higher interest rates mean more expensive mortgages! How is that good for property??’
Bear with me…..my belief is this: There are around one million homes languishing for sale across the UK currently. The average asking price is the SAME as it was in 2007 (Rightmove) despite values having dropped by a typical 15% depending on region (Halifax).
In other words, properties are too expensive and this is partly because estate agents give misleading valuations to perhaps overly optimistic sellers but also because those home owners are servicing mortgages that aren’t costing them much (comparatively).
An interest rate rise would make home loans pricier. And that might just encourage vendors to have to cut their prices to realistic levels so then buyers would actually want to buy them, thus unlocking the current stalemate in the housing market that has resulted in transaction levels hitting a record low.
Bad tasting medicine perhaps but a remedy nonetheless….