A rise in interest rates has sparked fears that rising costs for home owners and buyers will dampen the market – although the north-east might resist this trend as the energy market heats up.
The latest Bank of England base rate edged up to 1.25% on Thursday, up from 1% previously, and is the fifth rate rise in a row as the UK’s central bank tries “desperately” to curb spiralling inflation.
The rate rise will place a further squeeze on mortgage borrowers, while savers are yet to feel much benefit from the recent rate hikes, according to experts.
And economists have signalled the rate will continue to rise in coming months as the cost of living crisis drives up the price of food and fuel.
North-east could buck the trend
Joni Esson of Esson & Aberdein said the rise in the cost of borrowing would likely give home buyers across the UK pause for caution.
She said: “There is still uncertainty on the impact this will have on consumer confidence in the housing market and whether we see a slight softening of the market.”
However she said this may not be as much a factor in the north-east which is “on the cusp of a rebound” due to resurgent oil and gas prices.
On Thursday night a barrel of Brent crude was priced at $119 a barrel.
It had slipped slightly on fears that interest rises in both the UK and US, Switzerland fed concerns about a slowdown in global economic growth but has remained strong since March as the war in Ukraine plays havoc with global fuel supplies.
This has in turn caused record highs in costs of fuel for motorists as well as causing householders to face crippling rises in the cost of heating.
Yet in Aberdeen this is likely to impact the housing market, at least for the benefit of owners and sellers.
Ms Esson said: “The property market in Aberdeen and the North East could be on the cusp of a rebound due to renewed confidence in the oil and gas sector.
“With higher oil prices and continued uncertainty in Europe due to the war in Ukraine, governments are revising their energy policies and the UK is no different in that it will try to extract as much hydrocarbons as possible.
“This is bound to have an impact on the housing market in Europe’s oil capital and tied in with a huge increase in renewable energy sector activity, Aberdeen will attract an influx of skilled workers who will need new homes.”
Interest rate rise impact on mortgages
The rise in interest rates is increasing costs of fixed-rate mortgages.
Krishnapriya Banerjee, a managing director in Accenture’s UK banking practice, said: “While the cost-of-living squeeze is undoubtedly hitting consumers hard, we’re now also seeing the rate rises taking their toll.
“A number of the major banks have raised fixed mortgage rates, forcing homeowners to pay hundreds of pounds more for new mortgages.
“However, few are seeing this reflected in savings accounts, as banks are yet to pass on higher interest rates to savers.
Martin Beck, chief economic advisor to the EY Item Club warned that, like rising inflation, interest rates will continue to rise, too as the bank’s Monetary Policy Committee (MPC) wrestles with the country’s economic difficulties.
He said: “The EY Item Club expects a further 25bps increase in bank rate in August. And with the MPC not commenting on market expectations, despite the marked increase in recent weeks, the risks appear to be skewed towards further increases after that.”
Kevin Brown, savings specialist at Scottish Friendly, said: “By raising interest rates in quick succession the Monetary Policy Committee is desperately trying to curb inflation.
“Living costs continue to rise and could spike sharply again in October when the new energy price cap comes into effect, and with interest rates going up many UK households are also facing higher borrowing costs.
“Savers should benefit from rising interest rates, but in a cost-of-living crisis many households will be more concerned with their bills going up, rather than the possibility of earning a few extra pounds on their savings.”
