Rising Interest Rates and the Impact on the UK Housing Market

The rising interest rates will certainly impact the investment decisions of first-time buyers and homeowners who are looking to buy property in the UK in 2022. Most financial experts and estate agents predict that the rising interest rates will eventually cool down the housing market in the UK. For the past few months, the average price of property in the UK has been rising sharply, so this fall in property prices will be highly welcomed by potential buyers. In fact, if you’ve been thinking about selling your home, now might be a good time to book a free property valuation with Leaders, just to figure out the worth of your property before the impact of the rising interest rates. So, let’s talk about why the interest rates are rising and how these rising interest rates will impact the UK housing market in 2022.

Inflation And The Rising Rate Of Interest:

Due to the rising levels of inflation, the Bank of England decided to increase the interest rates from 1.25 percent to 1.75. On 4th August 2022, the Bank of England decided to increase the interest rates by 0.5 percent to curb the rising inflation in an attempt to reduce the inflation rate to 2 percent. Keep in mind, in December 2021, the rate of interest in the UK was a mere 0.1 percent, so this has been one of the biggest jumps in interest rates in 27 years!

The interest rates were then further increased to 2.25 percent due to the rising inflation, hence marking a period of recession. Essentially, the rate of inflation increased dramatically in the past year reaching a whopping 10 percent, which is supposed to be the highest increase in inflation since 1982! Before the inflation hit, interest rates in the UK were at an all-time low. This meant cheaper mortgages, easy home ownership, high buyer demand and a rise in property prices all across the UK.

So, How Will The Rising Interest Rates Impact The UK Property Market?

Historically, economies increase interest rates in order to slow down or curb inflation. However, the rising interest rates could be problematic for some industries. For instance, when the rate of interest rises, the mortgage rate also rises. This makes mortgages rather expensive which in turn reduces buyer demand. As buyer demand reduces, the price of property falls due to the abundance of supply but limited demand. Essentially, rising interest rates during a period of inflation lead to a lack of demand which eventually leads to a fall in property prices, based on the simple rule of demand and supply.

In fact, the rising interest rates will not only impact potential buyers but landlords too. As the mortgage rates increase, the mortgage repayment increases too. So, those landlords who are taking out a new mortgage or those who are thinking about revising their mortgage will have to pay higher rates of interest on their mortgage which will eventually cut into their profits. In order to take the onus off themselves, many landlords might end up increasing the rental price of their property. This could actually lead to an overall increase in average rental prices in the UK!

Rising mortgage rates expected to push down UK house prices

Due to the rising rate of interest coupled with the fall in property prices in the UK, many estate agents and market experts believe that more sellers will enter the market. This is because many property owners might not be able to afford their current mortgage repayments due to the increase in taxes as well as the increase in interest rates. Due to this, many property owners and property investors might prefer to sell their property. Many landlords are also looking to sell their rental properties due to the lack of profits. So, as more and more properties enter the housing market, the supply will continue to rise. This can be a great opportunity for first-time buyers and investors who are looking to invest in the property market in 2022 as the prices will fall and the supply will be quite high. Of course, the best way to invest in a property during a period of recession or inflation is by opting for a fixed-rate mortgage to avoid financial problems in the future.

In essence, due to the prevalent market conditions, sellers and homeowners who are looking to sell their homes should do so at the earliest before the prices start to fall. On the other hand, investors and buyers who are looking to invest in the housing market should wait for property prices to drop, as predicted by most experts.

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