We all do something to try and keep fit don’t we? My choice of the fitness elixir is to take from the cup by combining a bit of fun and comradery which translates to Badminton (alas too many injuries to carry on playing football). So, this weekend I had one of my Badminton comrades ranting and raving about the latest increase by the Bank of England which he felt will be the death of the Walsall Property Market as we know it today!
Before we all rush off to take drastic evasive manoeuvres we have to look at the entire picture to put matters into perspective. The recent interest rise is the first increase in 10 years; they have just been raised from 0.25 percent to 0.5 per cent. The uplift comes as inflation hits a 51-month high of 2.9 per cent whilst the national unemployment rate is at an all-time low of 4.3 per cent.
The average Walsall mortgage is £98,631…
So, for those Walsall homeowners on a Standard Variable Rate (SVR) or a Tracker…how does this affect them?
If we take a snapshot of the market for the WS1-WS10 postcodes there are 36,491 homeowners with a mortgage, of which 14,961 have a variable rate mortgage (the remaining have fixed rate mortgages). The total amount owed by those WS1-10 homeowners with those variable rate mortgages is £1,475,618,391.00. Using a general mortgage calculating tool and a standard SVR of 3.49% (industry average) you can work out the average mortgage payment before the rate rise being £493.00. After the rate increase the payment will increase to around £507.00 meaning…
The interest rate rise will cost Walsall homeowners on average an extra £168.00 per year.
So, what will this interest rate actually do to the Walsall housing market?
Well, in short – not a great deal. The proportion of Walsall homeowners with variable rate mortgages (and thus directly affected by a Bank of England rate rise) will be smaller than in the past, in part because the vast majority of new mortgages in recent years were taken on fixed interest rates. The proportion of outstanding mortgages on variable rates has fallen to a record low of 42.3 per cent, down from a peak of 72.9 per cent in the autumn of 2011.
If more Walsall people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those Walsall households having to sell their Walsall properties because they can’t afford the monthly repayments or even worse case scenario, have them repossessed.
However, and this will be of interest to both Walsall homeowners and Walsall buy to let landlords …
… for every 1% increase in the Bank of England interest rate, it will cost the average Walsall homeowner on a variable rate mortgage £56.00 per month & £672.00 per year!!
So, what next? Because UK inflation levels are at 2.9 per cent (the country’s highest rate since April 2012) and the Bank of England is tasked by HM Government to keep inflation at 2 per cent using various monetary tools (one of which is interest rates) – you can see why interest rate rises might be on the cards in the future as increasing interest rates tends to dampen inflation.
Now of course there is a certain amount of uncertainty with regards to Brexit and the outcome to those negotiations thereof, but fundamentally the British economy is in decent shape. People will always need housing and as we aren’t building enough houses (as I have mentioned many times in the Walsall Property Blog), we might see a slight dip in prices in the short term, but in the medium to long term, the Walsall property market will always remain strong for both Walsall homeowners and Walsall landlords alike.
I would love to hear your thoughts on the matter. Get in touch by calling, emailing or let’s meet up for a cuppa.
Phone: 01922 311016