Last week, Paul Fisher, a member of the Monetary Policy Committee said the MPC wants interest rates to normalise as soon as possible. Normalisation in this case is around 5%. This would not spell good news for home owners who have variable rate or tracker mortgages.
Fisher said that he hoped people realised that interest rates will rise and 5% is the level at which they will eventually end up. Interest rate rises are a ticking bomb for people with a mortgage. Add to that the fact that salary increases next year will lag behind inflation and it sounds like a recipe for disaster.
First-time buyers will find it nigh on impossible to get their foot on the housing ladder and more and more of them will be forced to rent rather than buy. Buy to let investors, on the other hand, could make a killing charging exorbitant rents as demand far outweighs supply.
But, Bank of England figures suggest that to pull in more property investors, house prices need to fall further. Lower house prices will lead to higher demand from institutional investors.
How far will prices drop? We’d need a crystal ball to make that prediction and even then there are other factors to be taken into consideration. However, there’s one thing we can be reasonably certain of and that’s things are going to get worse before they get better. Let’s hope by this time next year, the housing market as a whole looks a lot healthier than it does now.
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