House prices: will rising interest rates lead to lower house prices?

UK property prices have risen steadily over the past year, now firmly in the £200,000 range across the UK. The UK-wide average, according to the House Price Index (HPI), currently stands at £289,099, an increase of £23,100 from £265,999 in June 2021. These prices have risen steadily since October 2021, but they are expected to change, one that the Bank of England can help manifest.

Will rising interest rates cause real estate prices to fall?

The BoE’s Monetary Policy Committee (MPC) is due to meet this week on Thursday to decide whether to raise the interest rate again.

Economists believe the committee will choose to introduce its fifth consecutive boost following similar decisions in December, February, March and May.

The total will likely come in at between 0.25% and 0.5%, the highest since 2009, putting a damper on an already sluggish economy.

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Purchasing agents Henry Pryor said rising interest rates would reduce the headline inflation rate by a few points by 2023.

They said, “It will dampen enthusiasm, but it won’t bring prices down.

“House price inflation by this time next year will be 2% instead of 5%.

But they said demand would not change significantly as agents have a steady supply of buyers.


Mortgage activity has also started to slow, which the bank says will eventually reduce activity in the market.

The bank’s chief executive, Russell Galley, said price inflation had hit home hunters to varying degrees.

Mr Galley said buyers looking for a flat needed an extra £10,000, while those settled in a detached house needed an additional £50,000.

He added that the change would hit first-time buyers the most as the rungs of the housing ladder “widen”.

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