The decision in August by the Bank of England to raise interest rates by 0.25%, influenced by the prediction of imminent economic growth, may herald good weather ahead as we navigate through the tempestuous post-Brexit referendum storm
However, while a rise in interest rates may be good for some, for the housing market it can create some troubling conditions.
As interest rates rise, mortgages become more expensive, shrinking demand. Higher interest rates also result in construction projects becoming more costly, with an increase in materials costs and limited flexibility in construction companies’ cash flows leading to reconsiderations of project pricing for construction firms. Overall, this can lead to a discouraging environment for investment, coupled with a weak pound and the general uncertainty surrounding Britain’s withdrawal from the EU.
Due to these factors, we could be facing a long-term fall in property market transactions, which could have wider consequences. Post-crash research has shown that variations in housing equity feed into consumption expenditure. The last thing we need during volatile political decision-making is a housing demand shock that can adversely affect consumer spending.
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