Study looks at effect of interest rate rise on property prices
If interest rates in the UK were to increase to 1.5% such a move could wipe £28,000 off the average house price, new research suggests.
They study looked at the correlation between changing interest rates and the average house price and found that in general when rates go up, prices soon fall and as they’ve dropped prices have increased.
The research from property finance specialists One77 Mortgages points out that in the last 30 years, there has been just one notable event whereby interest rates increased rapidly, more than doubling from 7.38% in May 1988 to 14.88% by October 1989.
Accounting for fiscal lag, the house market maintained price growth momentum until August 1989 when the average house price peaked at £60,701. Between that point and October 1992, the average house price fell by 12.3%, some £740 per month, with the market bottoming out at £53,213.
With Brexit continuing to affect the economy there are some experts who believe that a number of rates increases could well be implemented if a deal is not reached.
The research says that if they were to reach just 1.5%, history could repeat itself and see a 12.34% decrease in the current average house price. If this were to happen, it would equate to £28,153 wiped off property values.
Alastair McKee, managing director of One77 Mortgages, said:
‘For many home owners, the current rate lows of sub 1% are all they’ve ever known, however, this could soon change should the current period of economic uncertainty continue.
‘Even a minor increase to 1.5% could not only translate to a substantial increase in monthly mortgage payments for UK home owners but could also see the price of their bricks and mortar investment fall.’
‘We’ve seen what Brexit uncertainty has done to the market already where the rate of price growth is concerned although it remains in good health considering, fuelled by a strong level of mortgage approvals. However, if we were to then see this buyer demand evaporate due to a hike in rates, the market could suffer further and see price growth fall into the negative.’
Kindly shared by Property Wire