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Why property investors should buy now before interest rates rise further

Rising interest rates and property investing have made the financial media headlines many times in the last few weeks. Average home prices in the UK and many other buoyant economies hit new record highs almost every month with some economists suggesting that the housing market is overheated.  

On the other hand, central banks such as the Bank of England (BoE) have raised interest rates and considered further changes in their monetary policy. The US Federal Reserve (Fed) and the European Central Bank (ECB) haven’t raised rates yet as their boards suggest that there are still other means to adjust their policies.  

In its most basic terms, a rise in interest rates means that borrowing becomes more expensive for those buying property, whether they’re acquiring for their own use or as a buy-to-let investment, while savers typically benefit from the rise- albeit by a small amount.

A report late last year by the Office of National Statistics (ONS) stated that the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.8% in the 12 months to December 2021, up from 4.6% in the 12 months to November.

Date from the ONS revealed that the largest upward contributions to the December 2021 CPIH 12-month inflation rate came from housing and household services (1.31 percentage points) and transport (1.29 percentage points, principally from motor fuels and second-hand cars).

Why investors should not delay

UK house prices rose at a faster rate in 2021 than in any calendar year since 2004, according to the Halifax. The mortgage lender said buyers sought more space during lockdown and took advantage of low-cost borrowing and stamp duty holidays.

Prices increased by 9.8% during 2021, it said – the fastest for any calendar year since a 12.5% rise in 2004. The average UK property price hit a new record high of £276,091 in December, it added.

In cash terms, that was a £24,000 rise in the cost of the typical home over the course of the year.

Asking prices for UK homes jumped in February, driven by strong demand for property in London and elsewhere and a shortage of housing stock. The price of homes coming to market rose by £7,800 between January and February, climbing to £348,800, according to data from Rightmove, the UK’s largest online property portal.

Tim Bannister, Rightmove’s director of property data, said “high demand and a shortage of available stock” had supported the asking-price rise. Ben Hudson, managing director at the estate agent Hudson Moody in York, north-east England, said a lack of housing stock was currently its “biggest challenge”. “As soon as anything new comes on to the market, it is flying off the shelf, with multiple buyers competing for the final sale,” he said.

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