Will a change in interest rates affect first time buyers in 2015/2016?

25th February, 2016

Will first time buyers in 2015 be put off making the commitment by impending interest rate rises? Interest rates are widely predicted to rise in the final quarter of 2015 if not in early 2016 and this could spell higher repayment charges and cause uncertainty for first time buyers. Some mortgage lenders have already started to increase their rates, so should first time buyers move now to get on the property ladder and take advantage of lower interest rates before the end of the year?

Fixed rate mortgage advantages

Interest rates have been at a record low for six years now. Furthermore, recent speculation from Howard Archer, chief UK economist at IHS Global Insight, predicts that the first Bank of England ‘rates hike’ will not occur until the second quarter of 2016. This forecast proves that the UK is still and may be for some time next year, inspiring confidence in first time buyers to take the leap.


Michelle Niziol, Director of IMS Mortgages says, “My clients are more inclined to fix rates for two to three years with the hope that in this time their salary will increase, they will have equity in their first home and be at a stage in their life where they want to move up the ladder. Fixing for this period of time gives them predictable monthly payments but only for the time they consider necessary before they may consider moving, any rise in interest rates will hopefully be counteracted by their increase in salary and equity.

Location, location, affordability

First time property buying is steadily becoming almost a necessary investment purchase, dictated by affordability and availability as much as location.  This new attitude, along with prices, is forcing buyers further out of London. Property within the M25 will always be popular and clients are happy to be within this commuter area. This has led to the increase of ‘up and coming’ areas of London, a perfect example being the legacy of the 2012 games with the re-generation of Stratford and the investments being made in areas such as Croydon where house prices have increased some 13% in recent years.

Generation ‘housing crisis’

Recent generations have found it increasingly difficult to get on the property ladder contending with higher prices, deposit amounts and the withdrawal of 100% mortgages. Parents or relatives who may be mortgage free and benefiting from final salary pensions can however benefit from the involvement of assisting to buy their children’s property.

By ‘gifting’ money, large sums can be moved away from the tax man and support the generation who are not only dealing with a housing crisis, but prices grossly inflated from when they bought their own. Another option is for parents to be named investors in their children’s homes but this does make them liable for capital gains tax when the property is sold.

Planning for retirement

Chris Craighead, Lettings Manager for IMS Lettings Solutions has seen an increase in investment clients looking to purchase properties to assist with retirement planning and pensions. The end of final salary schemes, the endowments scandal and low interest rates on savings means property as a buy-to-let is an increasingly attractive long term investment

So it seems, with the interest rates set to stay low for the rest of 2015, first time buyers are not only in a good position to look for a home, but also to find a future investment opportunity too.

Howard Archer, chief UK economist at IHS Global Insight prediction

IMS Independent Mortgage Solutions