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Are interest rates still a barrier to buying?

Are interest rates still a barrier to buying?

Category: Mortgages

Updated: 23/01/2015
First Published: 23/01/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Over the last 12 months, speculation of an imminent change in base rate meant fears of interest rate rises became an even bigger barrier to would-be house purchasers. However, thanks to the dramatic fall of inflation (CPI) to 0.5% in December 2014, it seems as though fewer buyers now see interest rates as an insurmountable obstacle to their dream of buying a new home.

A shrinking barrier

According to figures from the latest Halifax Housing Market Confidence Tracker, the number of consumers worried about rises in interest rates increased progressively from 14% in the last three months of 2013 to 19% in July to September 2014 - the highest level since the tracker began.

This increased fear, explains Martin Ellis from Halifax, was the result of uncertainty about the timing of a base rate rise: "Speculation over a potential rise was high on the news agenda at certain times in 2014," he commented. "[As a result] the Housing Market Confidence Tracker showed consumers becoming increasingly anxious about interest rate rises."

However, as 2014 began to draw to a close, the percentage of home buyers worried about rising rates fell to 13% - the lowest level for over a year. This drop coincides with a sharply falling rate of inflation, which hit an unexpectedly low level of 0.5% at the end of 2014. Thanks to this dramatic fall, the likelihood of a base rate increase in the near future has diminished, allaying house buyer fears that mortgage rates could increase in the next few months.

Other barriers to buying

But, the fear of an interest rate rise is not the only barrier potential buyers face. Currently, the largest single barrier is the difficulty in raising a deposit, with 61% of respondents saying that this was a major obstacle for them at the end of 2014.

However, there are measures in place to help alleviate this burden, with the Help to Buy scheme going some way to making this barrier less significant. Coinciding with this has been the improved affordability of mortgages after rates reached record lows towards the end of the year.

Perhaps unsurprisingly, this has led to increased numbers of buyers getting that first crucial step on the property ladder. Figures from the Halifax First-Time Buyer annual review revealed that the number of first-time homeowners in 2014 rose to the highest level since 2007, increasing by 22% over the course of the year.

The future

For the moment then, the future looks good for those making the leap into the property market. However, at some point base rate will increase, and this means that buyers must be prepared. So, if you are thinking of either getting on or moving up the property ladder, you need to make sure that you can afford your mortgage and that you can prove it.

"A rate rise will happen eventually, and lenders take this into account as part of the affordability checks in the mortgage application process," cautions Martin Ellis. "Going forward, the key factor in how they adjust to any changes in rates will be the way in which borrowers manage their disposable income."

Want to be a buyer?

So, how can you make your dreams of homeownership come true? Well, as the research shows, getting together that crucial deposit could be the biggest hurdle to overcome. To start compiling the funds, you will need a decent savings account. A fixed rate deal may be your best bet as they tend to offer more competitive rates. You can check out our best buys to get you started.

Once you have amassed the necessary deposit, it's time to start looking for mortgages. If your deposit is still small, then you may want to check out the Help to Buy deals on offer. Otherwise, take a look at our mortgage best buys.

What next?

Find a fixed rate savings account to stash your deposit

Check out the Help to Buy mortgages on offer

Take a look at our mortgage best buys

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.