In just 18 months interest rates have risen from a quarter of a per cent to five per cent.
And though demand for bigger properties in Stoke Newington has continued unabated, first-time buyers in the area have been spooked by the high cost of borrowing and sales of one and two-bed flats have been slower.
This latest hike in the base rate by the Bank of England will bring huge financial pressures for many locals, particularly those whose mortgage deals are up for renewal.
Peter May, Sales Director of Location Location estate agency in Stoke Newington, said:
“Those whose mortgages were fixed at 2% in 2021 are in for a bumpy ride when their deals expire in the next 12 months. They’ll be entering a market where the average mortgage is 6.5% and that simply won’t be affordable for some.”
Despite the cost-of-living crisis, demand for larger-family homes has remained high. Four-bed properties south of Church Street are frequently reaching upwards of £1.6 million and the demographic of people moving to the area is typically white-collar workers and established creatives (writers and musicians).
Conversely, prices of smaller one or two-bed flats have stalled – when the pandemic hit many realised they needn’t live in London any longer and demand from first-time buyers dipped.
Peter added: “When the time comes to upsize, first-time homeowners are increasingly finding the price leap to a bigger home too steep here. Many are leaving the area in favour of Walthamstow, Leyton, Highams Park and Forest Hill. It’s changing the demographic of the area.”
“Now we might see some correcting of the market. This latest interest rate hike will undoubtedly mean there are people in bigger properties who’ll be forced to sell and quickly. When that happens, it’ll bring a slight reduction in prices across the neighbourhood.”
While the cost of borrowing has been unusually low in the past 15 years, that’s something of an anomaly. Over the past 350 years, the average base rate for mortgages is 5%.
Peter said: “I understand first-time buyers are spooked; they haven’t known anything other than super-low mortgage rates. But when our parents were buying for the first time, 5% was the norm and, history shows house prices in this part of London increase steadily in the longer term.”
“When you’re looking at spending £1,900 per month to rent a small one-bed flat and essentially pay someone else’s mortgage, buying even at these rates doesn’t seem so bad. Dips in the market like this one are actually the best time to buy.”
The rental sector has been rocked by regulatory changes and rising costs have forced many landlords to sell up – leading to a lack of affordable rental homes and forcing rental prices up.
The rise in interest rates this week was the 13th consecutive base rate hike. Rates haven’t been this high since 2008. There’ll be a further 12 interest rate reviews before the end of 2024 when the Central Bank is keen to get inflation down to 2%.
In the meantime, the options for those struggling with rising costs are:
- Switching to interest-only mortgages (this should only be a short-term solution, otherwise, you will have to pay your remaining mortgage balance at the end of your mortgage term).
- Extending the term of your mortgage (terms of up to 40 years are available). This can help reduce the monthly payment but can cost tens of thousands of pounds over the life of the mortgage.
- Make money from your property (renting it for short-term let during holiday periods via platforms like Air B&B or taking in a lodger).
- If you still have some time on a low fixed-rate deal, you could consider overpaying now to reduce the mortgage and lower payments when that deal ends. Most lenders typically accept up to 10% overpayments per annum.
If you need any help or guidance regarding anything mentioned in this article please reach out to the team at Location Location.
