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U.K.’s Rising Interest Rate Unlikely to Hit Prime Property Markets

Bank of England hikes rates to 0.75%; some borrowers will feel pinch more than others

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The interest rate hike in the U.K. will not substantially impact the prime property markets.

stockcam/Getty Images
The interest rate hike in the U.K. will not substantially impact the prime property markets.
stockcam/Getty Images

The Bank of England’s interest rate hike Thursday is not likely to substantially impact prime property markets in the U.K., although mortgage borrowers at all price points who have variable rates will see their monthly payments go up.

On Thursday, the Bank of England raised the benchmark interest rate by a quarter of a percentage point to 0.75%, its highest level in almost a decade. Mortgage interest rates, which consumers pay to banks or other lenders, are expected to follow suit soon.

As many luxury buyers, especially international buyers in the U.K. market, tend to be all-cash buyers, the expected mortgage interest rate hike is less likely to dampen their demand.

"For our super high-net-worth clients, we don’t expect that this will have any impact as many are cash buyers or are not concerned with marginal changes to the bank rate," said Martin Bikhit, managing director at Kay & Co., a London-based brokerage firm.

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In the short term, homeowners on fixed mortgage rates have nothing to fear or should not feel compelled to sell, "as they won’t be impacted until their current deal runs out," said Shaun Church, director at Private Finance, a mortgage broker.

However, those with variable rates (fluctuate with markets) and tracker rates (set at a certain percentage above benchmark rate) mortgages, will soon start to see their repayment costs rise, Mr. Church said.

Currently there are more than 3.5 million residential mortgages in the U.K. that are on a variable or tracker rate. The average standard variable rate mortgage is 4.72%.

Homeowners paying off the U.K.’s average mortgage debt with a variable rate mortgage face paying an extra £17 to £18 (US$22 to US$23) per month, or about £200 (US$260) annually, according to Jon Ostler, chief executive of finder.com, a leading personal finance site.

The extra cost should not be a decisive factor when it comes to real estate moves. Additionally, the interest rate hike is "a positive sign that the economy is growing stronger," Mr. Ostler said, which will potentially fuel healthy growth in the property market.