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Highlights
- BoE is all set to go for another rate hike of 50bps in August, lifting the rate to 1.75%.
- Millions of homeowners are facing hikes in mortgage costs amid the rising inflationary pressures.
- Homebuyers with variable mortgage rates will struggle immediately due to the rate hikes.
The UK is all set to witness the most significant hike in interest rates since 1995 as the Bank of England (BoE) is expected to go for another rate hike of 50 basis points (bps) in August. As the inflation in the country reached a new 40-year high level of 9.4% in June, the BoE was pushed to lift the interest rates to 1.25%. With the upcoming hike, the rate will soon hit a record level of 1.75%.
With the inflation and interest rates going up, the concerns among home buyers have also been increasing as it is becoming more and more difficult for them to buy properties. Millions of home owners face hikes in mortgage costs amid the rising inflationary pressures. The escalating cost of living squeeze is hurting households' budgets and making it difficult for first-time buyers to climb the property ladder.
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The upcoming rate hike would take the interest rates back to levels not witnessed since 2008. But the scenario is different as the interest rates were lowered post the market crash then, while the rates are expected to surge further now to tackle the escalating inflationary crisis. Homebuyers with variable mortgage rates will struggle immediately due to the rate hikes; for others, fixed-rate deals will soon end.
According to TotalMoney and Moneycomms, for the average UK home priced at £270,708, with a 75% loan-to-value, a rate rise of 50bps could take the mortgage repayments to cost over the November 2021 level by £196 per month. The consistent interest rate hikes leading to rising mortgage costs are putting more and more pressure on households.
As mortgage rates are going up, homebuyers are becoming extra cautious with their decision to buy houses, leading to a cooling down of the housing market. Demand from buyers, especially the new ones, is getting dampened due to soaring mortgage rates as affordability is decreasing.
Amid the ongoing rate hikes, UK investors can keep on real estate stocks offering decent returns. Kalkine Media® deep dives into the stocks currently doing well amidst the ongoing inflationary situation.
Palace Capital plc (LON: PCA)
Palace Capital engages in making investments in regional property and its shares were trading at GBX 285.00 at 8:37 AM (GMT+1) on Thursday.
With a market cap of £125.48 million, PCA has offered its positive returns of 10.43% on an annual basis as of 4 August, respectively. It is presently offering a yearly dividend yield of 3.7%.
Balanced Commercial Property Trust Ltd (LON: BCPT)
The shares of the Commercial Property Trust Ltd on Thursday dipped by 2.21% at 8:34 AM (GMT+1) and were trading at GBX 115.20. As of 4 August, the company holds a market cap of £838.21 million and over the past year, it has offered its returns of 20.00% and 9.71% on an annual and YTD basis.
Supermarket Income REIT Plc (LON: SUPR)
The shares of Supermarket Income REIT Plc dipped by 0.39% at 8:42 AM (GMT+1) on Thursday. SUPR’s shares were trading at 128.00 and held a market cap of £1,593.23 million. However, the SUPR has been productive for its investors in the one-year and YTD basis giving returns of 5.37% and 4.34% as of 4 August, respectively. It is presently offering a yearly dividend yield of 3.8%. Its EPS also stands in the positive zone, at 0.12.
