Property Investment 101: Can high interest rate slow down property price increase?

Property Investment 101: Can high interest rate slow down property price increase?

It’s more expensive to buy when interest rate is higher

I was just sharing with a friend that once upon a time, the interest rate for my mortgage was 6.75 percent. In recent times, it was as low as 3.5 percent and now perhaps slightly above 4 percent. In other words, the rate is 50% lower if not more versus previously. Do you know what’s the difference like for a property of the same price when rates are different? Take a look below:

Huge difference then and today!

The difference is a whopping RM736 extra per month! It’s a difference of whether the bank is willing to loan you the money or not because the difference is closer to 40 percent difference! This is why it gets expensive when the interest rate is higher yeah. For one market however, the interest rate is at 16-year high but the property price still gained 1.5 percent within the past 12 months. Where is this property market?

Article in businesstimes.com.sg UK HOUSE prices increased for a second month in June. Nationwide Building Society said its measure of prices rose 0.2 per cent in June after an 0.4 per cent gain the month before.

Prices are now 1.5 per cent above a year ago, with interest rates at a 16-year high contributing to affordability concerns for people who need a mortgage. Nationwide said it’s seen an increase in the portion of cash buyers in the market.

Robert Gardner, chief economist at Nationwide said, “Today, a borrower earning the average UK income buying a typical first-time buyer property with a 20 per cent deposit would have a monthly mortgage payment equivalent to 37 per cent of take-home pay – well above the long run average of 30 per cent.” Please do read the full article here: Article in businesstimes.com.sg

Interest rate is not the strongest reason influencing the property market

When sentiment is positive; people are expecting a better year ahead, they will seek to buy a property or invest their month even if the interest rate is high. When the sentiment is negative, for example during the Covid days, even if the interest rate is very low, people will still be worried and may not buy. They have no idea what will happen within the next 12 months. Safe to say, perhaps the sentiment is positive in the UK or people just could no longer wait because they have waited too long to buy a property? Renting is not cheap too and every pound paid to rent is lost forever too.

Happy knowing.

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