How the Bank of England rate rise actually boosted property
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on the Bank of England’s Money and Credit report and effective interest rates, showing how the Bank of England rate rise actually boosted property.
Key points from publication:
- We borrowed another £5.9 billion in mortgages in January, in the wake of the rate rise in December.
- Mortgage approvals for the coming months rose to 74,000. Both are up from December, and above the pre-pandemic 12-month average.
- The rate on new mortgages stuck at an average of 1.58%. The rate rise had already been factored in during December.
- However, we also borrowed slightly more on cards and loans, and we squirrelled away more in savings.
Sarah Coles says:
“Homebuyers defied December’s Bank of England rate rise, borrowing almost £6 billion more in mortgages in January, and getting tens of thousands of deals approved for the coming months. But this isn’t a sign that they’re completely unphased by rate rises, it’s one of a number of reactions that show growing concern.
“There’s a good chance that, for some buyers, all the speculation in the latter half of 2021 meant that December’s rate rise was factored in months earlier and was small enough not to make much difference to their plans. However, for others, this presented a window of opportunity. Mortgage rates had risen slightly but didn’t budge during the month. Buyers knew they had the chance to lock in a cheap fixed rate deal for a home move and protect themselves from rises being widely predicted for February and beyond.
“When February’s rate rises feed through into the figures, we may well see approvals slow down, and with more rises expected in the spring, it could put the brakes on the housing market. This could be the brief window of calm before the heavens open on the property market.
“Elsewhere in the figures, we saw growing signs of worry about the cost of living crisis. Those people whose finances are on a knife edge risk falling into debt. There’s been a slow creeping growth of borrowing on credit cards – up £0.1 billion in a year. No doubt some of it is people carrying their festive debts into the new year, but there’s a risk that some of it is people dipping into the red when price rises mean they can’t afford to make ends meet.
“Those with a bit more space in their budget appear to be protecting themselves by salting away a bit more cash for the looming rainy day. We saved another £7.7 billion, plus £0.1 billion with NS&I. This is below the monthly average of £9.4 billion in the 12 months to December, which involved periods when we were completely locked down, but it’s higher than the pre-pandemic 12-month average of £5.5 billion.
“For those dreading price rises, and saving like crazy, there was some rare positive news from the savings market: fixed rates started to rise. It was far from across-the-board, and most banks didn’t pass rate rises to all their accounts, or in full. However, on average new fixed rate accounts offered 0.67%, up from 0.36% a month earlier. In the month since, we’ve also seen some of the most competitive deals edge up. So while the overall response from the savings market has been disappointing, there are bright spots that committed savers can take advantage of.”
Kindly shared by Hargreaves Lansdown
Main photo courtesy of Pixabay
