Alan Munns: Margate property values and rising interest rates

The cost of buying property in Margate

The current average value of a property in Margate currently stands at £228,000 and the base rates are now at 0.75%. In many of my articles, I talk about what is happening to property values over the short term (i.e. the last 12 months or the last 5 years), but to answer this question we need to go back over 40 years, to 1975.

The average value of a Margate property in 1975 was £11,038 However, since 1975, we have experienced in the UK, inflation of 807.5%.

Back in 1975, the average salary was £2,291, an average car was £1,840. A loaf of bread was 16p, milk was 28p a pint and a 2lb bag of sugar was 30p. Inflation has increased prices, so comparing like for like, we need to change these prices into today’s money. In real spending power terms, an average value of a Margate house in 1975, expressed in terms of today’s prices was £100,181.


Before we move on, hold onto the thought that you can quite clearly see from the table, in real terms, properties are cheaper today in Margate than they were in 2007!


So how exactly do interest rates affect property values?



Another fall out of a rise in mortgage payments is a rise in repossessions. Interestingly, repossessions in the UK rose from 15,000 per annum in the late 1980s to over 75,000 per annum in the early 1990s, meaning even more properties came onto the market, exasperating the issue of over supply – pushing property values even lower.

High interest rates caused property values to fall in mid 1970s, early 1980s and most recently, the early 1990s (who can remember the 15% mortgage rate!) Conversely though, the drop in property values in 2008/2009 – was not due to interest rates, but due to the credit crunch and global recession.

So, what will happen if or when interest rates rise?

It is vital to remember that interest rates are not the only factor affecting property values. Now that interest rates have increased (which they have from 0.5% to 0.75%), property values can also continue to rise (it happened throughout the mid to late 1980s and again between the boom years of 2002 and 2007). When confidence in the economy is good, and we as a country experience a period of rising real incomes (i.e. after inflation), then the British in the past have continued to buy bricks and mortar, notwithstanding the rise in interest rates.

Another important factor on property values is the supply of housing. A big reason in the current level of Margate house prices is due to the shortage of supply, which has kept property values higher than I would have expected.

An additional factor is whether homeowners have a variable or fixed rate mortgage. 90.6% of new mortgages taken in the last quarter were at a fixed rate, and 66.2% of all mortgaged homeowners are on fixed-rate mortgages, therefore, they will not notice the effects of higher interest rate payments until they re-mortgage in a few years’ time, meaning there is frequently a time-lag between higher interest rates and the effect on property values.

Another factor on mortgages is the ability to get one in the first place. Back in 2014, mortgage providers were told to be stricter on their lending criteria when arranging mortgages following the footloose days of 125% loan to value mortgages with Northern Rock. These new rules are a lot more rigorous on borrowers’ ability to repay the payments (although it makes me laugh, when with starter homes, it nearly is always cheaper to buy than rent!).


In conclusion, interest rates are important – but nowhere near as important on the Margate (and British) property market than they were 15 or 20 years ago.

One final thought – how do we measure the success of the Margate property market? I believe one measure that is a good bellwether is the number of property transactions, as that could show a more truthful picture of the health of the property market than property values. Maybe I should talk about that in an up and coming article?

Alan Munns operate My4walls sales and lettings agency in Margate.