A leading mortgage broker has warned that the Chancellor's move in his recent budget to investigate the possibility of introducing and encouraging longer term fixed rate mortgages, could work against the Chancellor's plan to stabilise the property market and moreover actually push prices up.
Quite simply, the view put forward is that if mortgage lenders are encouraged to offer stable, long term fixed rate mortgages, this may encourage them to offer higher than normal income multiples. In turn, this may mean people can borrow even more than what lenders will currently offer, creating yet more demand and higher prices.
Our view:
Property, as with any other asset, is subject to supply and demand rules. Trying to engineer control over house inflation with products is not as effective as controlling the limits on affordability with interest rate control. Expect house prices to continue to grow over the medium to longer term.
The one fact that is true is that the amount of land and property available is not increasing but the population is increasing i.e. demand will continue to grow.
With wealth generally increasing and investment markets continuing to be volatile, property demand can only increase. Albeit, expect a slow down later this year when and if interest rates are increased.
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