Rates are now falling – the average two-year rate across the big six lenders is 4.6pc, down from 4.7pc last month, according to comparison site Uswitch – and lower-than-expected inflation figures will only put more pressure on the Bank of England to cut rates at its next meeting.
The estate agent Savills reckons house prices could go up 2.5pc over the course of the next year if rates continue to fall. Contrary to my previous assumptions, this would suit me just fine.
Here are my sums. At the moment, my house has been valued at £200,000. I have a £150,000 mortgage, so that puts my equity at £50,000. The houses I’m lusting over on Rightmove are around the £330,000 mark, so I would need a mortgage of £280,000 to make the dream a reality.
With a rate of 4.57pc, that puts my monthly payments at around £1,570 and a total of £37,600 over two years.
Now let’s say Savills is right, and prices go up 2.5pc as rates come down. My house is now worth £205,000, my equity is £55,000 and the mortgage I need for my next home (which has also gone up) is now £283,250.
Interest rates have come down slightly, so I’m now on a rate of 3.9pc. My monthly payment is £1,480 – nearly £90 a month less, and a saving of more than £2,000 over a two-year mortgage deal.
And what if prices were to come down, and interest rates went skyward? If the rate increased to 5pc and house prices fell 2.5pc, I would need a mortgage of £276,750, and my monthly payments would be about £1,620. This scenario would cost me £50 extra a month, or £1,225 over the two years.
So, dear house price gods, I apologise for the confusion but I’m changing tack. After years of praying for a house price crash, I’ve done the maths and it’s time for a U-turn: prices up, please.
