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U.K. Brokers on Interest Rates: Don’t Be Alarmed

Borrowing costs could go higher next year, but agents say non-British buyers may actually benefit from a rate increase

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Prime areas of London where cash buyers are common may be less affected by higher mortgage rates.

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Prime areas of London where cash buyers are common may be less affected by higher mortgage rates.
Getty Images

Wealthy international buyers eager to invest in London property are being urged not to be thrown off by speculation about impending interest-rate rises in the U.K. Last week on a day dubbed "super Thursday" it was announced that the base rate, which is set by the Bank of England and against which mortgages are priced, could rise in the next year. Since 2009, the base rate has been at a historical low of 0.5%, and banks have responded by slashing the cost of mortgages, making borrowing to buy a British property enticingly cheap. Revealing the decision of the Monetary Policy Committee to hold interest rates at 0.5% for another month in August, the governor of the Bank of England, Mark Carney, suggested that the first rate increase may come in February or May next year. This is slower than expected; Carney had previously suggested rates could rise at the turn of the year. Some U.K. banks have already responded by pushing up their home loan rates slightly, though brokers say the era of ultra-low mortgage rates is not over yet. Three lenders are still offering sub-1% deals. Mark Harris, chief executive of mortgage broker SPF Private Clients, said borrowers could take some comfort from hints that when rates do start rising they are likely to do so slowly, settling around the 2% to 2.5% level. Simon Hedley, of Druce estate agency in Marylebone, believes non-British buyers may actually benefit from a rate rise. “The overarching effect of a possible interest-rate increase is to make London property more attractive to international buyers, as prices will to some extent slow, making property more tempting to buyers who may have been put off by the strong pound.” Another factor to take into consideration, Hedley said, is that “in prime central London, where the market is largely orientated around cash buyers, the effect of a change to interest rates will not be felt as strongly as in areas in which buyers rely heavily on mortgage borrowing.” A rate rise is likely to have the greatest effect on the domestic market outside of London, said Simon Armitage of Druce in South Kensington and Chelsea. He said it is stamp duty increases that have had the greatest impact on the international market. “Someone buying a property for £1.5 million will now pay around £20,000 more in stamp duty than they would have last year, whereas an interest-rate increase of 0.5% would cost a buyer of the same property a less crippling additional £7,500.” Follow Mansion Global on Facebook, Twitter and Instagram Write to info@mansionglobal.com