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Since the rate rise by the Bank of England, the financial product that banks use to hedge their mortgages, called swaps has increased to a point where it is higher than the prevailinig mortgage rates.  This situation is quite unusual for the banks, and is resulting in the mortgage rates being pressured upwards and since the start of February over 500 mortgage products have been pulled by the banks.

According to MoneyFacts UK, the number of mortgage products has fallen by 518 since the beginning of February.  This combined with the continued cost of living price squeeze, pushed further by the war in Ukraine and cutting of Russian oil supplies is likely to have a dampening affect on the local economy and property prices in the medium term.

At Abode we are already beginning to see the first affects of the inflationary environment on our clients.  For the first time since Covid began some rental properties are no longer letting on the first day of viewings, with some requiring price decreases to ensure they rent.  This is a direct result of the increased costs that renters are facing, and there simply is not the available funds to sustain the increases that have occured over the past two years.  As you can imagine we are seeing this impacting the lower income renters first, as they are disproportionally affected by the price increases.

For those of you interested in history, a very similar situation occured in 1973-74, there was a period of very loose monetary policy, which increased employment.  OPEC at the time cut oil out put which pushed the price of oil from $7 a barrel to $28 a barrel.  This stoked inflation, employees demanded higher wages, which in turn created higher inflation.  The federal reserve was forced to raise rates by 4% in 3 months, and an additonal 6% the following year.  This had a massive affect globally with stock markets in the UK and US falling 45%, the housing market slowed dramatically but prices were maintained as the mortgage market was just opening up at the time.

Should inflation continue on it's upward trajectory we could well be forced into an environment of large rate rises, and with property being at the least affordable level in history on an average earnings basis large interest rate rises would pose a real risk to underlying prices inspite of the demand and supply dynamics.  Our advice is to lock in any debt on fixed term contracts for a 5 year period, that will insulate you from the worst of the coming rate rises.