Base rate rise and HIPs cast dark cloud on property market

A widely anticipated base rate rise next month (May) and the introduction of the new Home Information Packs (HIPs) on 1 June are likely to significantly put the brakes on the UK property market, Moneynet.co.uk has warned.

Most commentators are now forecasting a 0.25 per cent rate rise to 5.50 per cent on the back of this week’s news of the leap in inflation figures as reflected by the Consumer Prices and Retail Prices Index.

And with the impending HIPs legislation likely to add an additional £1,000 burden to the cost of selling a home, online data comparison site Moneynet.co.uk chief executive Richard Brown said that homeowners and buyers are likely to be caught in a double whammy of rising costs.

“Many experts feel that a further quarter per cent increase in base rates is likely next month and this could in turn lead to a further rise in mortgage rates, although swap rates - the money market rates on which most fixed rate deals are based - have already been rising over the last couple of weeks in anticipation of a further base rate increase,” said Brown.

“A further rate increase is bound to slow the market as the effects of previous rate rises since last year are only just properly filtering through, and another quarter per cent will not only be hard on existing mortgage holders, but will put home ownership out of the reach of many potential first time buyers,” argued Brown.

“The arrival of HIPs is also likely to slow the market, as many sellers may well change their minds and hold off putting their homes up for sale. Fewer properties will push up the prices of the increasingly sought after available ones, so all in all we could be in for a very volatile ride in the property market over the coming months,” predicted Brown.

A scramble for fixed rate deals is also likely in coming weeks, but Brown advised mortgage holders to take a measured view, rather than plunging in headfirst.

“Re-mortgaging hit record levels last month with banks and building societies lending more than £500 million a day to borrowers who have decided to change lender. The Council of Mortgage Lenders also announced its latest figures showing that in January 85% of all first time buyers opted for a fixed rate mortgage, but one size will not fit all,” he said.

“Lenders backing the majority of available fixed rate deals will impose a penalty if you wish to repay the mortgage within the fixed rate period, however, many of the very lowest rate products impose the penalty beyond the end of the fixed rate - this means that you get stuck with paying the normal variable rate for a number of years at the end of the initial fixed rate period.”

Moneynet.co.uk warned that homeowners also need to watch out for other stings in the tail such as arrangement fees and booking fees, which have increased substantially over recent years.

“For example, The Portman Building Society is currently offering a two year fixed rate at 4.84% which, on the face of it, appears to be a very attractive rate. However, on closer inspection there is also an arrangement fee to pay with this product amounting to 1.50 per cent of the mortgage amount which effectively increases the rate paid over the two year period to a not so attractive 5.59 per cent.

“Other lenders also lay traps for borrowers – but with further base rate rises predicted over the year, now may well be the time to take the plunge and have the certainty of repayments for the next three or five years,” added Brown.