Increases to the Bank Rate and swap rates are likely to have a significant impact across all areas of the housing market, Nationwide’s senior economist, Stefano Silvestrin has warned.
Speaking at the Financial Services Expo (FSE) London on Wednesday (16 September), Silvestrin outlined a future in which rates rise gradually over the next two to three years to just over 2%, however suggested this would have an immediate impact for many sectors.
He suggested those looking at property in the future as an asset class might look elsewhere once rates begin to increase. Cash transactions in the UK housing market have held firm in recent years – up 3% – and Silvestrin said this had been supported by a low-rate environment which had conversely made other asset classes, for example cash savings, less attractive.
“But this may be counterbalanced when rates do start to move,” he said. “Other assets may begin to look more attractive compared to property.”
Silvestrin also suggested that the buy-to-let sector in particular, and landlords especially, were benefiting from low rates. “Rates in the buy-to-let market have come down quite significantly,” he outlined. “The spread between owner-occupier and buy-to-let rates used to be about 2%, now it has halved to 1%. Arrear levels for buy-to-let are also now lower than for owner-occupier mortgages – low rates are having an impact in keeping these down.”
However, he anticipated increases in rates to have an impact. “As rates start to increase we expect the share of buy-to-let lending as a proportion of overall total lending to reduce,” he said. “We expect modest growth for buy-to-let lending to be the most likely path.”
Silvestrin also commented on the spreads mainstream lenders were making on their current mortgage deals. Answering a question on whether lenders would be able to tighten their margins, even in a rising interest rate environment, he said: “Talking to those close to the mortgage market there is a belief that spreads are very tight at the moment and they can’t move much. However, if Bank Base Rate does rise, [lenders] are more likely to make more money on their savings account margins and this may translate into tighter mortgage spreads.”