Will the interest rate rise affect house prices?
While the UK has endured historically low interest for years, the Bank of England has once again increased interest rates with the first back-to-back hike since 2004. In an attempt to address growing living costs within the UK, interest rates have risen from 0.25% to 0.5%. This means that over 2 million people in the country who have a mortgage will likely be affected.
Recently, CEO of iPlace Global – the creators of Moveable – Simon Bath, spoke to Carol Lewis from The Times about whether the rise in interest rates would affect property prices.
What affects interest rates?
Interest rates in the UK are set by the Bank of England and are affected by a variety of factors including the current cost of living crisis – seen primarily through soaring energy bills, goods prices, and petrol prices in the past few months. Factors such as supply and demand, inflation, unemployment and wage growth can also affect interest rates, which we can see in the salary increase for truck drivers and similarly for those in the skills industry, both due to the lack of available workers.
While the increase of prices in one sector doesn’t necessarily result in inflation, the rise of prices across multiple sectors means that consumer spending power is weakened. With inflation set to peak at 7% in April, the Bank of England have decided to increase interest rates by 0.25% in an attempt to curb inflation – this means that for any prospective homebuyers, mortgage and loans prices will consequently be affected.
The continuous rise of house prices
The average house price has increased by 11.2% since last January – that’s around £26,000 more than it was just a year ago.
In a housing market that has become near unrecognisable, property prices have continued to soar in most regions of the country, outmatching the average income of Brits – with average house prices around the UK over 7 times the average salary. Unsurprisingly, this number shoots to 9 for properties within London.
With this, we have also seen the demand for houses continue to steadily increase. It is clear that Brits have continued to pay over the odds for houses in the UK due to additional fees and services that come with purchasing a home.
What does the increase of interest rates mean for house prices?
An increase in interest rates means that mortgage and loan prices will also go up, meaning that those planning on buying a house will have to pay additional costs to what are already sky-high prices. The latest increase could potentially add about £300 a year to the average mortgage bill for those on the standard variable rate.
Normally, an increase in interest rates would subsequently lead to lower house prices due to larger mortgage prices. However, with such a small rise, it is likely that this will go unnoticed by those looking to buy a house. This is largely due to the high demand and low supply structure, as the race for space has meant that Brits are looking to purchase larger homes outside of the Cities.
With another potential 0.5% interest rate increase on the cards for the Bank of England’s next announcement, it is only then we may see a cool down in buyer demand, and eventually a decline in house prices.
What can Moveable do to help?
Moveable is a free and easy-to-use service that helps you with the complicated process of buying a home. From expert guides to price-comparison and timesaving tools, you can access everything you need to lower your moving costs!
Create an account here and start your home move.