What will be the impact of another interest rates rise on the property market?

Interest rate rises  

The dynamics of the housing market are changing with the recent announcements in the financial market, first an increase in the Bank of England (BoE) base rate to 2.25% in September, and now interest rates rising by another 0.75 percentage points to 3%. 

It is the first time the BoE’s benchmark interest rates have hit 3% since November 2008, in the midst of the financial crisis. The move announced today is the biggest single rise in the cost of borrowing since 1989.  

However, the BoE did say “while further hikes could be necessary to pull inflation back to its 2% target, the peak rate will be lower than what financial markets currently expect”.  

Overall, the BoE is now envisaging a peak in Bank Rate of 4.5% in May 2023. 

Inflation, which hit 10.1% in September, is expected to peak at 11% this winter before falling next year. 

But how will this impact mortgages? 

The average mortgage payment is expected to rise by about £73.49 monthly rise for the average tracker mortgage, and £46.22 for the average standard variable rate (SVR) mortgage. 

Following the BoE’s decision, lenders could decide to increase these fees if interest rates rise again. 

What does it all mean for the market? 

Paul Hilton, CEO of ESPC, said: "This rise was not unexpected and has already been priced into many mortgage products. With the BOE confirming any future rate rises may not be as high as ‘currently envisaged by the financial markets’, we may see some reductions in new fixed-rate products.   

“Scotland’s property market is historically resilient, and we anticipate that demand for quality local housing stock will remain steady. Despite the recent changes in the financial market, moving home remains a good opportunity and the increasing focus on affordability highlights the importance of high-quality, expert advice for buyers. This is where your solicitor estate agent is key, as they are duty-bound by the Law Society of Scotland to do the best by their client and this ensures that affordability and individual circumstances are key when making an offer and buying a new home.”