• Inflationary pressure indicates potential interest rate increases
  • Demand remains high, underpinning house price increases
  • How to put yourself in the best position as a buyer in a sellers’ market

Are inflation and interest rate increases affecting mortgage affordability?

Inflation and cost of living increases are suddenly at the forefront of everyone’s minds after a decade out of the news. High inflation at the moment is being fuelled by several factors including the scarcity of certain products, the rising cost of fuel and restricted supply of certain goods due to the war in Ukraine.   

This has resulted in the Bank of England using one of its key levers, interest rates, to help dampen inflation.

The outlook suggests that further interest rate increases are on the horizon to try to slow the inflationary rate. This has a tangible effect on the housing marketing in terms of the cost of borrowing. Over the past 10 to 15 years, we have become used to a low interest rate environment and a corresponding cheaper cost of borrowing, with some mortgage interest rates even dipping below 1%.  

Lower mortgage rates have allowed people to borrow more while not adversely impacting overall affordability and monthly expenditure. Inflation and increases in household bills also have a direct effect on eligibility for the best mortgage rates as living costs are factored-in to any decisions about affordability of mortgage payments and, of course, less disposable income makes it harder to save for a deposit.

Any increase in the Bank of England “base rate” is normally passed-on from banks to borrowers in the form of higher mortgage interest rates. This in turn reduces the amount that a person can afford to borrow to purchase a property.

In spite of this, mortgage availability remains good and some lenders’ 5-year fixed term mortgage products are being offered at lower interest rates than the 2-year products which suggests that these lenders don’t anticipate a long term, continuing picture of interest rate increases. 

According to our mortgage expert partners, the “base rate” is not the only factor that affects the interest rates available to borrowers. Competition amongst lenders remains fierce and some banks have more money than they know what to do with to the point where they are, in fact, more limited by their ability to process new mortgage applications than a desire to lend. Whilst underlying interest rates are rising, not all of these increases are being passed-on to borrowers at the moment.

The option exists at the moment to “fix” your rate for a longer period of time at attractive rates and to give yourself a level of certainty at an uncertain time

We have hand-picked the best mortgage advisers and experts in Scotland to guide our buyers through this area. If you are thinking of buying and are concerned about potential interest rate increases, please drop us a line and we will arrange an introduction to these experts for an initial, free consultation.


What the figures are telling us

The latest provisional statistics from the UK House Price Index show that the average price of a property in Scotland in March 2022 was £181,415, an increase of 8.0% on March 2021. Compared with the previous month, house prices in Scotland were essentially unchanged (a decrease of 0.05%) between February 2022 and March 2022.

The UK average house price was £278,436, which was an increase of 9.8% from March 2021 and an increase of 0.3% versus the previous month.

The volume of residential sales in Scotland in January 2022 was 7,181, a decrease of 5.0% on the original provisional estimate for January 2021 and an increase of 4.7 per cent on January 2020. 

Rightmove has reported that the price of property coming to market hit a fourth consecutive record of £367,501, up by 2.1% monthly (+£7,400). Average asking prices have risen more than £55,000 in the past two years, compared to a £6,000 rise in the two years before the pandemic.

ESPC reported that during February to April 2022, the average selling price of property across Edinburgh, the Lothians, Fife and the Borders rose 6.5% year-on-year to £273,437.

Sales volumes dropped by 21.2% annually during this period whilst new properties coming to the market dipped by 6.5%, indicating the continuing challenge that buyers are experiencing of lack of choice in the marketplace.

ESPC reported that the highest price increases were seen in West Lothian, where market activity has ramped-up in recent months fuelled by the demand for more space at a more affordable price than in Edinburgh. In this area, property selling prices rose 37.9% to £276,596. East Fife continued to report significant price increases, with an average selling price of £312,665, 26.1% higher year-on-year.

Overall, Edinburgh saw average property selling prices rise 6.4%, taking the average to £290,456. In the city centre, prices rose 8.9% annually, to £353,189.

These figures support the view that there is a significant imbalance between supply and demand in the Scottish housing market.


Demand still outweighing supply
The level of interest in properties from property buyers is still high and shows no sign at the moment of tailing-off. Sold signs are going up within a couple of weeks or even a few days of some properties hitting the market and we are not seeing any reduction in demand or of prices being achieved. This is leading to historically low levels of “stock” available on the market for buyers which, in turn, increases demand and drives house prices upwards.

Sellers continue the trend that we have seen in the past few years of preferring to find their new home before putting their own on the market, furthering the issue of “supply” to the market. 

For buyers who would rather purchase a brand new home, supply is also impacted by the reduced availability of certain raw materials which is having an effect on the building of new homes. This is inflating demand for new builds and seeing off-plan plots sold several months in advance of completion. Our specialist New Build Legal Team is concluding missives at the moment on properties that won’t be available until the middle of 2023. This reduction in availability of new build properties, in turn, drives further demand in the second-hand market.

There is little sign of more “supply” to the market in coming months meaning that it looks like remaining a highly competitive marketplace for buyers. Which makes it all the more important to put yourself in the best possible position as a buyer…


Being a good buyer

With all this in mind, it is important to understand what you want, and what you can afford, in the current economic environment and to consider what can make you more attractive to a seller. Any small advantage can make a difference.

One such advantage is being in a position where you can be flexible enough to meet a seller’s requirements on date of entry. Having already sold, or being a cash buyer, can often outweigh a slightly higher offer from someone who still needs to sell their own home. The seller also knows that they are not having to wait on a linked transaction. 

If you can consider selling or putting your property on the market first it may give you a head start. It will also allow you to fully understand what your budget for buying is. In current market conditions, many properties are selling far in excess of the official Home Report valuation, and this will positively affect your budget and may allow you to look at properties that were previously out of your consideration.

Whilst it can be a terrifying prospect, and one that simply isn’t possible for some sellers and buyers, we would recommend that any property seller who is in a position to do so sells their own property first before buying. 

Renting for a shorter period of time than six months is now far easier than it was a few years ago as a result of changes to tenancy rules in recent years. Other options such as staying with family for a short period of time or taking advantage of the AirBnB market in quieter seasons when owners are more likely to extend good, longer-term leads are also options.

Other ways to put yourself in the driving seat as a buyer include:

  • Ensuring that you have professional advice from an expert and reputable independent mortgage broker which gives a seller confidence that your mortgage “agreement in principle” (in other words, a lender’s provisional assurances that you qualify for a mortgage with them) is based on professional assessment rather than a brief internet search  
  • Making sure that assets have already been liquidated and that the cash is in fact available if you are putting yourself forward as a “cash buyer”
  • Getting in touch for an initial consultation with a firm of solicitors that specialises in buying properties for hundreds or thousands of buyers every year, are experts in the Scottish marketplace and who can give you the best possible advice when you are competing against multiple other buyers. You don’t want to be Googling “how do I submit an Offer?” when you find your dream home and the Closing Date is the very next day! MOV8’s dedicated Purchasing Team of four local market experts does this day-in, day-out and will be delighted to help.

We’re here to help

If you are thinking of buying or selling a property MOV8 is perfectly placed to help. The five-star rated team of property experts can help guide you through each stage of the property process.

If you are thinking of selling your home or investment property, get in touch with MOV8 by calling 0345 646 0208 (Option 1) or by emailing valuations@mov8realestate.com to organise a free valuation of your home or to get a full, transparent breakdown of the costs of selling your home.

If you are looking to buy a property as a home or investment, please call 0345 646 0208 (Option 2) or email purchasing@mov8realestate.com and they will be happy to help.


This article was brought to you in association with Mov8