How rising interest rates will affect the housing market

Towards the end of last year, we talked about how inflation could affect the housing market.

The Bank of England has also raised interest rates to 0.5 percent from 0.25 percent – the second increase in three months.

And according to analysts from Property Industry Eye, they could hit 1.25 percent by the end of 2022.

If that trend continues and interest rates surpass 1.5 percent, the impact on borrowers and homeowners could be significant.

How interest rates will impact mortgage payments 

Currently, around three quarters of mortgage holders are on fixed-rate deals, so these increases won’t cause problems until their current terms end.

But if you’re a homeowner with a variable rate mortgage, it may be time to review your finances.

Firstly you’ll need to calculate if you can absorb projected increases (not forgetting that surging energy bills are set to push inflation higher).

If not, switching to a fixed-rate deal may be the best option if you’re able, to stop costs getting beyond your capabilities.

Higher interest rates could mean higher mortgage costs as borrowing becomes more expensive.

That said, even with recent increases to around four percent, current mortgage rates are still relatively low in a historic context.

How interest rates will impact first time buyers

On a positive note, higher interest rates will benefit first-time buyers saving for a deposit, as they’ll receive a better return on their savings.

UK house prices reached record levels in 2021 amid the global pandemic, with the Office of National Statistics (ONS) reporting a 12 percent average increase.

Few predicted the demand the housing market saw, as many analysts initially reported that social and economic restrictions would slow the market.

But with demands remaining high and properties still in relatively short supply, prices are staying elevated.

That means that, for now at least, rising interest rates aren’t having a negative effect.

However, significant rises could see a pullback in buyer demand, a slowdown in refinancing and a corresponding slower rate of price growth.

Want to talk to an expert about rising interest rates?

If you’re buying or selling a property, our team is here to answer all of your questions, including those on rising interest rates and mortgage affordability.

Our specialist local knowledge means we can advise with confidence on the housing market in your area.

To speak to someone today or discuss any concerns about how interest rates could affect you, please get in touch.


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