Interest rate rise to bring reality to the property market

January’s quarter point interest rate rise to 5.25 per cent may prove to be a major reality check for speculators hoping to profit from further house price rises and encourage them to sell now and help to feed the massive demand for property. The rise is not, however, expected to meaningfully reduce buyer demand, which has been “phenomenal” across Winkworth offices.

Simon Agace, non-executive Chairman of Winkworth Franchising Ltd, says: “In its bid to stem inflation by increasing interest rates again the Bank of England has also fired a warning shot to speculators that property prices can't go on rising forever. This quarter point rise should encourage those that have been holding back from selling - in order to achieve even higher capital gains - to make their move now in case they lose out to a less dynamic market in the future. It will, therefore, bring more stock to the supply-starved market, which has until now been distorted by an acute supply/demand imbalance, which started in London and spread outwards last year.

“It is important to remember that the increased cost of London living, due to congestion charging, general prices and taxation, together with higher mortgage rates when fixed rate terms eventually expire, will eventually reduce peoples' disposable incomes and make people think again about living in the Capital.”

London is in danger of becoming a victim of its own success as living costs rise.

Simon Agace says: “This rise will not influence the spring market - except to help release some stock as investors and owners do their sums on future disposable income. Worryingly, London is in real danger of pricing itself out of the market in the long-run, making it difficult for the young executives needed by companies to buy and pay for homes for their families.”

In the short-term, though, the huge level of demand reported by Winkworth estate agents across London and beyond suggests that a quarter per cent rise may not have an immediate influence on buyer confidence.

Ian Dickson, franchisee of Winkworth offices in Hammersmith and Shepherd’s Bush says: “Although interest rate rises are usually unwelcome news, this one may prove to be a sensible measure to prevent the market overheating. Given the massive level of demand, where even over Christmas buyers didn't break their stride, the impact of this rise may only be felt in the medium to long-term as the total cost of London living is taken into account. It will not be enough to deter buyers, but it may put a lid on the market in the short run.”

Josh Grinling, franchisee of Winkworth Kensington, says: “Prices rose substantially in Kensington last year, so a rise in borrowing rates may help to cool the market. If people have been holding off selling their houses in order to capitalise on even greater profits then this may sway them into selling.”

Ian Fraser, franchisee of Winkworth Islington, says: “Given the phenomenal level of demand already seen this year, it is hard to believe that a rate rise of 0.25 per cent will have any real impact on buyer confidence. Historically 5.25 per cent is still very low and mortgage repayments remain cheap - there are still fixed rates on the market at under five per cent.”