Interest rates play a big role in shaping the housing market, affecting how much people can afford to pay for homes.
Interest rates play a big role in shaping the housing market, affecting how much people can afford to pay for homes. In the UK, we’ve had low interest rates for quite a while, which has helped keep mortgage payments steady and boosted house prices. However, things have changed recently, with interest rates going up. This has made mortgages more expensive and put pressure on people’s budgets, impacting the demand for homes and, in turn, their prices.
Let’s break it down: when interest rates rise, so do monthly mortgage payments. For example, on a £300,000 property with a £30,000 deposit over 25 years, a mortgage at a 1.92% interest rate would mean payments of around £1134 a month. But if the interest rate jumped to 4.5% or even 6.5%, those monthly payments would shoot up to £1501 or £1863, respectively. For most, that extra cost can make buying a home seem less affordable, which can then bring down property prices.
Conversely, when interest rates are low, mortgage payments are more manageable, making it easier for people to buy homes. Looking at the above examples for someone with a monthly budget of £1500 for the mortgage payment. Those rates would put the price of the property with a. 10% deposit at
£395,000 = 1.92%
£300,000 = 4.5%
£250,000 = 6.5%
But it’s not just about interest rates. The housing market is influenced by lots of other factors too. There are different deposit amounts, buyer types, lending caps for incomes. All the different buyer types are coming together and competing for the same properties.
Plus, everyone’s situation is different, so it’s important to get personalised advice to figure out what’s best for you.
In a nutshell, while interest rates have a big impact on the housing market, they’re just one piece of the puzzle. As they go up and down, it’s essential to keep informed and get help from professionals to navigate the ins and outs of buying and selling homes. Remember, this info is just guidance and meant to help you out, not replace personalised advice!
Your home may be repossessed if you do not keep up repayments on your mortgage
25/03/2024 – the information contained within was correct at the time of publication but is subject to change