It may seem crazy but read on and there is some good logic here that explains how low interest rates could be contributing to the lower number of properties being sold.
We blogged earlier (30th September) about property sales trends being at an historic low, and that gross mortgage lending was around 36% down on last year and around 50% of “normal” lending levels. There are many reasons as to why there are a lower number of completions but here is a new one, well at least we have not seen anyone else report on this.
An increasing number of property owners with mortgages are now benefiting from their lender’s standard variable rate (SVR), and in the majority of cases the SVR is tracking the bank base rate (BBR) currently at 0.5%. The upshot is that a large proportion of property owners are benefiting from SVRs in the range 1% to 3%. However if those same property owners wanted to move home they would, in the majority of cases, end up paying a higher rate of interest on their new mortgage due to the current lending criteria.
To put some figures on this ….
- Lets say you are currently paying 2% on your £100,000 mortgage, that is an interest payment of £2,000 p.a.
- The new house needs a new mortgage, and the rate being offered is 4%, giving interest payments of £4,000 pa.
- The net impact is your mortgage payments increase by £2,000 p.a. with the same level of mortgage
So, if you were wanting to move to a slightly bigger house, or one near to the new school, etc, then you have to factor in much higher mortgage interest costs, thus creating a big “disincentive” for moving home. Clearly this is a simplistic example but it highlights the point, staying where you are allows you to benefit from very low mortgage rates that in many cases will be lost if you move home.
