Here’s how rising interest rates have affected the property market

Rising interest rates have been big news over the last couple of years, with many mortgage holders seeing their outgoings increase. It’s not just individual families that have been affected, it’s having a wider impact on the property market too.

To tackle high inflation the Bank of England (BoE) started increasing its base interest rate at the end of 2021. Before that, the base rate was at a historic low of 0.1% in a bid to stimulate the economy following the Covid-19 pandemic. A series of rises means that, as of May 2024, the base rate is 5.25%.

An interest rate of 5.25% isn’t high when you compare it to the long-run average. Older generations who were paying a mortgage in the 80s and 90s will remember interest rates reaching double digits. Yet, after a decade of very low rates and soaring house prices, the rises over the last two years have affected the market. 

The average mortgage term is longer

The trend for longer mortgage terms has been influenced by rising property prices, and now higher interest rates are playing a role too.

Traditionally, first-time buyers would take out a mortgage with a 25-year term. However, affordability challenges mean homeowners are choosing to repay their mortgage over a longer period to reduce their regular outgoings.

According to a report from UK Finance, around 1 in 5 first-time buyers were taking out a mortgage with a term of at least 35 years at the end of 2023. 

A longer mortgage term might be useful if you’re worried about how you’ll meet repayments or need to stretch your affordability to secure a mortgage. Yet, it will usually mean you pay far more in interest overall. So, saving money in the short term could harm your long-term finances.

For example, a first-time buyer borrowing £200,000 through a repayment mortgage with an interest rate of 4.5% would pay:

  • £1,111 a month and £133,370 in interest over a 25-year mortgage term
  • £946 a month and £197,337 in interest over a 35-year mortgage term.

In addition, mortgage holders might need to consider when they’ll finish repaying their mortgage. The average age of a first-time buyer is rising and coupled with longer mortgage terms, it could mean more households will feel financial pressure later in life.

Property prices are still rising, but the pace has slowed

Rising interest rates have placed pressure on household finances. So, it’s perhaps not surprising that the value of the average home is growing at a slower pace than it once was.

While some experts predicted that house prices would fall in 2024, figures suggest they’ll continue to grow, but at a slower pace. Halifax’s house price index shows house prices briefly fell in 2023, but are now growing again. 

In April 2024, the value of the average home increased by 1.1% when compared to a year earlier.

Amanda Bryden, head of mortgages at Halifax, said the stagnating values reflect a “housing market finding its feet in an era of higher interest rates”. While stagnating prices might not be good news if you’re planning to sell property soon, Halifax noted that a period of stability could give homebuyers more confidence.  

The mortgages available are changing quickly

The mortgages a lender offers are influenced by the market and the BoE’s base rate. As a result, there’s been a lot of volatility that might have affected those searching for a new mortgage deal.

According to Moneyfacts, as of March 2024, the average shelf-life of a mortgage was just 15 days. For homebuyers, it could be frustrating to find a deal that suits your needs, only to find it’s been withdrawn before you can apply. Rapid changes can place more pressure on those seeking a mortgage.

A mortgage broker can be useful in this scenario. They’ll understand the criteria of various lenders and work on your behalf to identify mortgages that could be right for you. If you’d like our support when searching for a mortgage, please get in touch. 

Despite the challenges, sales volumes are 12% higher than last year

There were concerns that the challenges homebuyers faced would lead to the property market stagnating, but sales are higher than they were a year ago.

According to statistics from Zoopla, as of April 2024, sales volumes were up 12% year-on-year.  Indeed, if the market stays on the same track for the rest of the year, it’s estimated that 1.1 million sales will take place throughout 2024, around 100,000 more than in 2023.

So, whether you’re thinking about selling or buying property, you shouldn’t let the effect of rising interest rates put you off – there could still be plenty of opportunities for you.

Contact us if you’re searching for a mortgage & we can introduce you to our trusted professional 3rd party.

Searching for a mortgage can be daunting, especially when the property market is affected by higher interest rates and uncertainty. If you’d like support, we’re here to help you. RPG Chartered Financial Planners are not authorised or regulated to provide mortgage advice, instead we can introduce you to our trusted professionals who may be able to assist.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.


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