Interest rates are on the rise with further increases expected over the coming months as the Bank of England seeks to contain inflation – which is on course to pass 10 per cent this year.
That figure – the highest since 1982 – is rightly a cause for concern, but in the housing market, 10 per cent price inflation has been allowed to persist for long periods.
Ultra-low interest rates have made mortgage borrowing cheaper, inflating a housing bubble that has made homeownership a distant dream for many renters in some parts of the UK.
So, will higher interest rates help to cool down the country’s out-of-control property market?
What is the latest data on UK house prices?
Figures released by Halifax on Friday, relating to a period before the Bank of England raised rates, show that there was not much sign of a slowdown in April.
Despite fears about living costs and big increases to energy bills, house prices rose 1.1 per cent (about £3,000) compared to March.
The average house price hit £286,079 after the 10th consecutive monthly rise in prices, marking the longest run of increases in six years.
Halifax said a “race for space”, which began during the pandemic, is likely to continue as people move out of apartments in cities to larger houses in more rural areas.
April’s price increase was slightly slower than the 1.4 per cent recorded in March, but the annual increase was still 10.8 per cent which is far in excess of average pay rises.
Some analysts had expected price rises to calm down after the end of a stamp duty holiday last year. That has not happened.
There are further signs that prices may not be coming down in the near future. The number of sales jumped 28 per cent in April compared with January.
Estate agent Chestertons said it has seen a 31 per cent jump in the number of people registering for viewings at its London branches.
Chief executive Guy Gittins said there is now a “strong sellers’ market” and the number of vendors willing to reduce their asking prices has fallen 38 per cent in the past year.
“The sheer volume of agreed sales in April has created a challenging workload for solicitors and banks which has impacted on the time it takes to finalise a sale,” he said.
Rising interest rates will impact some buyers’ ability to purchase a home but the effect may be limited.
What’s driving UK house price increases?
Prices have been inflated by the supply of cheap credit. While rates are increasing they still remain very low by historic standards. Buyers with a large deposit can still get a two-year fixed deal at an initial rate of around 2 per cent.
Supply of homes also remains a problem. There aren’t enough properties that people want in the areas that they want them.
