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What does the rise in interest rates mean for the property market

Posted on Febuary 04, 2022 at 3:51 PM


This week we saw the much anticipated rise in interest rates by the Bank of England for the second time in three months to 0.5%. Coupled with a hike in inflation and surging energy bills, the rise is being said to be required to deal with “continuing signs of greater persistence in domestic cost and price pressures”.

So, what does this mean for the current housing market? Analysts expect rates to increase further - to 1% by this summer and potentially 1.25% by the end of this year. The hope is that this rise will slow inflation to bring affordability back in-line.

Could this put the brakes on a very buoyant housing market and the house price boom that we have witnessed in the last 18 months?

New buyers will have to recalculate how affordable their mortgage is now with the associated current increases in the cost of living. Supply and demand may still play a part with an extreme shortage of properties coming to the market sustaining the current levels of property prices, but will affordability remain as strong?

The rate rise will no doubt be unwelcome news for most existing homeowners, particularly those on a variable rate or tracker rate mortgage who will be hit immediately. It is estimated a mortgage based on the average UK property price on a tracker rate will now cost an extra £40 per month.

But those on a fixed rate may still see a little breathing space as their fixed rate period comes to an end – it is anticipated that c.1.5 million fixed rate products will come to their natural end in the next two years or so, giving those homeowners the chance to review their finances in the next few months and potentially re-fix before any subsequent interest rate rises are implemented. This can give certainty to budgeting whether you are a first time buyer, investor or just simply looking to move home.

For first time buyers, there are still a good range of competitive mortgage products out there. This is after all only the second interest rate rise since August 2018. For others already on the property ladder, this may give some reassurance going forward until things settle down.

No doubt there is an interesting year ahead for us all and the decisions the mortgage lenders make both on levels of borrowing and property values will indicate their degree of confidence in the market going forward. Hopefully this cautious approach to interest rates by the Bank of England will continue to support borrowing in this sector and the overall the stimulus that the housing market provides to the wider UK economy.

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What does the rise in interest rates mean for the property market


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