The likely impact of the interest rate rise on house values

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What is the relevance of interest rates on house values?

There are several reasons why interest rates are important to the housing market. Firstly, they determine how much you have to pay to borrow money to buy a property. Secondly, they influence the value of a property. In general, low interest rates increase demand for property, increasing house prices, whilst high interest rates generally do the opposite, lowering demand.

How will the interest rate rise impact house values?

So, the Bank of England’s decision to raise the interest rate from 1.25% to 1.75% will likely ‘slow’ the housing market. This increase is the biggest in the last 27 years and will affect mortgages, credit card debt and savings accounts. This decision comes amid signs that the housing market is already cooling due to inflation and the cost of living crisis. In the last week, it has been announced the monthly house price growth is at just 0.1%. The Bank of England has also warned that a recession, likely to hit this autumn, may cause house price growth to slow down further. The higher interest rates may also lower prices but,
according to the central bank’s Chief Economist, are unlikely to lead to a crash.

What should you do, as a buyer?

If you have found the perfect house, or are hoping to get onto the property ladder, buying sooner than later may be a good idea. As experts predict, mortgage rates will continue to increase, and house prices will also continue to rise- albeit at a slower pace. Figures from the Bank of England last week showed mortgage approvals fell further below their pre-pandemic levels in June- as lenders raised interest rates to their highest levels since 2016.
On a local scale, to Dorset, all of the above is relevant and representative of current and
predicted impacts on house values. Although, it is worth noting that Dorset will likely see much a less dramatic change than that of densely urban areas.
Overall, the usual advice can be applied: timing the market is not the thing you should be
worried about- nobody can completely predict this. Ensuring that you can afford your mortgage, even if interest rates rise, and that you will be happy in your new home are the fundamental two things you should ensure.

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