Time to break out the barbecue?

Published by: Alex Maile

We are now officially in summer - Wimbledon is on its way, the thermometer is rising, and many of us have been busy dusting down the barbecue and enjoying a spot of alfresco dining. Those same benign conditions, though, are hard to find in the property world at the moment. Instead, all the headlines have been about the rising base rate and the soaring cost of mortgages.

It is all a bit of a shock, as we have become so used to the low cost of borrowing. The last time rates were this high was before the financial crash of 2008, 15 years ago, and many younger homeowners will never have experienced those kinds of rates at all. In all the hysteria, it has somehow been forgotten that our historically low interest rates were only ever intended to be temporary and, at some point, they were bound to start rising. In fact, 5% mortgages were the norm before 2008. The problem has been the unexpected nature and speed of those rises, which has caught a lot of people cold. Fortunately, since 2019, 96% of borrowers have chosen fixed-rate deals, so the vast majority won’t feel its effects for a while yet.

It was April’s higher-than-expected inflation figures that started all the hand-wringing when they were released towards the end of last month. In response, the money markets did an abrupt U-turn on their forecasts for a reducing base rate, announcing they now believed it would continue rising to as high as 6.0%.

However, as many of the key drivers of inflation are already receding, sooner or later, that will start showing in the figures and the process should go into reverse. Even so, we'll still need to get used to the idea of higher mortgage rates, although they are more likely to be around 3% to 4% than 5% to 6%.

Well that’s quite enough of that - enjoy the sunshine, try and ignore the headlines and I’ll see you again next month.