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Trellows Investments

news 13 2

news 13 2

Business consultancy Hargreaves Lansdown is predicting house prices will still rise, even after a possible hike in interest rates later this year or early next.

Sarah Coles, personal finance analyst at the consultancy, made her prediction after the latest government house price data showing values bouncing back close to their record highs in August, after a small dip in July.

She says the erratic movement in price growth was inevitable after the stamp duty holiday changes, but insists that “when these fall out of the figures, there’s every sign that prices will remain resilient – even after interest rates rise.

“Most of the value of the stamp duty holiday was lost at the end of June, so we saw a big surge in average prices in June as people rushed for the deadline and pushed prices up. After this passed, the market took a breath, and prices dropped back slightly in July. Then, in August, the final stamp duty holiday deadline started exerting an influence.

“And while people could save far less at this point, there was still the psychological effect of the final deadline at the end of September urging them on. Price rises bounced back in August, and there’s every sign they’ll remain strong in September too.”

Coles says an interest rate rise is on the cards, because of movement amongst financial levers such as swap rates – but she says the signs are that an interest rate rise will not trigger house price falls.

“The banks are currently prepared to increase their exposure to risk in a way they would be wary of, if they thought prices would fall. So, for example, HSBC has increased limits on how much wealthy buyers can borrow. Those with incomes of £75,000 or more can now borrow five and a half times their income – up from five times – and there’s every chance other banks will follow suit”

“Likewise, the Bank of England Credit Conditions survey last week showed that banks were increasingly willing to lend in the three months to September, particularly to those with less equity in their homes. They expected to make borrowing even easier towards the end of the year. When asked what affected their decision, while better economic conditions dominated, they were also positive about the future of house prices.”

Coles believes the immediate prospects for the property market aren’t tied so directly to the Bank of England base rate as they once were, partly because most mortgages are currently fixed over two or five years.

“Those who are locked into rock bottom rates are protected from rate rises for a significant period. Those who have deals coming to an end within the next six months can arrange a new fixed rate right now, which will kick in immediately after their deal expires.

“And while rate rises will be unwelcome, and will eventually feed into higher mortgage payments over the coming years, as yet, rate rises are being predicted at relatively modest levels, so there will still be deals available at historically affordable rates. So while we may see some of the heat come out of the market, we’re not currently expecting prices to fall.”

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