U.K. home loans are cheaper than they have ever been, with one lender even rolling out a mortgage carrying an interest rate under 1%. Since 2009, the Bank of England has kept the U.K.’s base rate, against which mortgages are priced, at a record low of 0.5%. But is borrowing to buy property in the U.K. about to get more expensive?
RELATED: A Guide to Large Mortgages in the U.K. Speculation is growing that the base rate will start to rise next year as the U.K. economy improves, unemployment continues to fall and inflation starts to edge up again. “The U.K. is rapidly reaching the point where the excuses for keeping interest rates at emergency low levels are wearing thin,” said Alastair George, chief strategist at Edison Investment Research. Although many overseas investors will buy London property with cash, viewing the U.K. market as a safe haven, others may use mortgage finance for tax reasons to save having to transfer 100% of the purchase price into the country. Any increase in the Bank of England base rate could have an impact on those who have already bought as well as those considering a purchase. “With many private banks tending to offer variable rates rather than fixed deals high-net-worth borrowers could see the cost of their mortgage increase,” said David Hollingworth of mortgage broker London & Country. But he added, “though rates will no doubt rise eventually, the timing remains up for debate and most believe the increases will be gradual. Given that rates are at record lows the talk of rate rises is unlikely to put many off London property, which has continued to increase in value, even if the pace of that increase has slowed.” More: In London, Luxury Rises in the East Adrian Anderson, a director at mortgage broker Anderson Harris, agreed, saying that any increase in rates will have more of an impact on U.K. domestic buyers. Ultra-high-net-worth internationals are likely to be less dependent on funding. “Even when rates start to rise they will be doing so from a very low base of 0.5% and the Bank of England has hinted that they will rise slowly, finally settling at around 2% or 3% so the effect will be limited, and there is no need to panic.” International buyers interested in British property may want to consider fixing their mortgage now to take advantage of historically good value rates, recommends Alex Newall, managing director of Hanover Private Office, which markets super-prime properties in central London. Though he said, “an interest rate rise should be seen as a positive sign of a stable and growing U.K. economy.”