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Base rate rise- The Impact on housebuilding!

The cost of building is highly likely to become more expensive as a result of the rise of the Bank of England base rate. At the beginning of the month the bank’s committee voted to increase the base interest rate from 0.25% to 0.5% and it is said that this could cause some lenders to increase their interest rates on loan products.

What impact could this have on housebuilders? 

The base rate rise will indeed bring mixed views as some say it will make the cost of building more expensive as well as raising the cost of owning a home, while others are confident that the base rate rise will not have any significant impact on the fortunes of housebuilders, considering the small and gradual nature of the changes. Also it is believed that the higher rates should increase the value of the pound, which will help to alleviate build costs.

Could the interest rate rise make it harder for housebuilders to obtain finance? 

It is very difficult to know how the banks will behave, same goes for both high street lenders and the challenger banks. Banks will often pull out of development projects, often on live schemes without warning. Therefore it is going to be very interesting to see how the rate rise will play out in the development finance market. Due to the mainstream banks becoming far more risk averse and lending far less, any change in the cost of borrowing is likely to increase the issue.

The above is the reason that lenders who are stepping into this gap to provide developers and property purchasers with the funding necessary to get projects up and running are very much thriving in the development market. The bank of England base rate has little or no bearing on rates in terms of the alternative lending sector, and given the competitive nature of sectors at this time, we wouldn’t envision any extra barriers to borrowers obtaining finance.

 

 

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