Interest rate rises are the biggest risk to the housing market, say consumers

Rising interest rates are the single biggest risk to the UK’s housing market next year, according to the final Property Tracker report of 2013 from the Building Societies Association (BSA).

It reveals that 27% of people surveyed now say that this is their biggest concern for 2014 and consumers are also far more worried about the affordability of monthly mortgage repayments today than they were three months ago, with 46% of people saying that this is now a barrier to property purchase, up by 11% on September 2013, reflecting concern about the rising cost of living and an increase in energy bills.

First time buyers, however, are feeling more positive about the property market compared to three months ago. Although raising a deposit is still the largest barrier to owning a home, the number of people who believe this is the case has fallen by a third, from 66% to 44%. Publicity around the government’s Help to Buy schemes will inevitably have helped, increasing confidence amongst first time buyers, the report says.

‘It is understandable that consumers are wary about a rise in interest rates in 2014, but unless the pace of economic recovery picks up considerably, it is unlikely we will see the Bank Base Rate rise over the coming 12 months, and when interest rates do rise, it is likely to be gradual,’ said Paul Broadhead, head of Mortgage Policy at the BSA.

‘There remain plenty of options for a home buyer to get greater certainty over their mortgage repayments with 69% of the mortgage products available on the market now at fixed rates. When consumers apply for a mortgage, most lenders will also check that it is affordable were interest rates to rise, which should provide some comfort for home buyers, though it may mean they can borrow less than they anticipated,’ he explained.

He also pointed out that mortgage rates are also far lower today than they were 10 or 20 years ago, which is good news as household budgets are still under considerable pressure. In the early 1990s, a typical mortgage would have taken up around 27% of a household’s monthly income, whereas today it is nearer 17%.

‘Consumers consider their whole household budget when thinking of buying or moving house and we hope the improving economic conditions will start to be felt in consumer wallets in the New Year,’ said Broadhead.

‘It is encouraging that first time buyers are feeling more confident about the housing market. Publicity surrounding government schemes will have helped, alongside the increase in supply of lower deposit mortgages. We would urge consumers to shop around if they do have a smaller deposit, as there are excellent deals to be had outside the Help to Buy Scheme,’ he concluded.