Falling inflation coincides with fall in concerns about interest rates as a barrier to buying

21 January 2015

The drop in inflation (CPI) to 0.5% in December 2014 has corresponded with a steep drop in the proportion of consumers viewing interest rates as one of the main barriers to people being able to buy a property, according to the Halifax Housing Market Confidence Tracker.

Over the last 12 months, the Tracker has shown the proportion of consumers citing concern about rises in interest rates as a barrier (to buying property) rise steadily from 14% in Q4 2013 to 19% in Q3 2014 – the highest since the Tracker began at 22%. However, this fell back to 13% in Q4 – the lowest level in over a year – at the same time as inflation began to fall sharply in the last few months of the year.

Martin Ellis, housing economist at Halifax, said:

“Speculation over a potential rate rise was high on the news agenda at certain times in 2014 and the Housing Market Confidence Tracker showed consumers becoming increasingly anxious about interest rate rises. But with inflation falling sharply in the last few months it’s taken away some of risk of an imminent rise and worries have fallen accordingly.

“While a rate rise will happen eventually, lenders take this into account as part of our affordability checks in the mortgage application process. 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.”

Other barriers to buying

It is not only interest rates that consumers perceive as being a barrier to buying a property. The largest single barrier is perceived to be the ability to raise a deposit (61% of Britons said this in Q4 2014). However, in the last few years there have been a number of schemes launched specifically aimed at supporting borrowers with smaller deposits such as the Help to Buy scheme, which has loaned buyers deposits and guaranteed loans.

Martin Ellis said:

“Mortgage affordability has improved significantly in recent years with record low mortgage rates a major contributor behind this improvement.

“Figures from the 2014 Halifax First-Time Buyer annual review show that the number of first-time buyers is at its highest level since 2007 and last year the number of first-time buyers increased by 22%. This was the third successive annual increase with a 50% rise in the past two years.”