Rob Starr, CEO of Seico, weighs in on the recent interest rate increase:
“The Bank of England has, as predicted, increased the interest rates once again, this time by 0.5%, and it is not inconceivable that another increase may happen again this year. I think it would be ridiculous to suggest we were not all aware this was coming and dare I say it that even I cannot put a positive spin on something that will be an added cost to so many people. However, equally I think that perspective is always a good thing and there are always positives to be taken from any negative actions.
“So, whilst we have no choice but to accept the increase in mortgage rates, we should look a bit deeper and see what positives there are still around for people buying and selling houses.
“Firstly, what is a recession? A recession is normally defined as two consecutive quarters of negative growth, but this is very different. Recessions generally mean a widespread drop in spending and a deep drop in employment rates. Neither of these has happened or are likely to happen. Spending on the high street, on the internet, and in the property market continues to be strong and unemployment remains low, in fact as at May 2022 UK unemployment was at its lowest level in nearly 50 years. This all combines to mean that the money market, the thing that feeds the mortgage market, remains very strong. In other words, using a very plain language – lenders have plenty of money to lend and they desperately want to lend.
“Secondly, let’s consider affordability calculations. Recent changes in the way lenders look at how much they can lend to you has at last softened. This is not to suggest that they will go back to the crazy lending of yesteryear, but it does mean that lenders can now look at true affordability from their own perspective rather than having to lend on fixed government rules. This allows lenders to offer help and guidance when it is obvious that a loan is affordable. This ultimately means that if you can afford it, and you can prove how, then lenders are keen to help.
“Finally, let us look at Fixed Rates. These are still averaging at around 3.5% for a 5 Year Fix. This is historically incredibly low and is still openly available. A long-term fix like this is there to remove the ups and downs of your mortgage payments. Taking a fixed rate on your purchase, or changing your existing mortgage to a fixed rate, really can help you avoid unexpected increases on what is still likely to be your largest outgoing.”