The Impact Of Higher Interest Rates On The Property Market

Monday 19 December 2022

Written by Barry Soraff

The Impact Of Higher Interest Rates On The Property Market

The Impact Of Higher Interest Rates On The Property Market

Understandably, there is a lot of talk about higher interest rates and what that will mean for the property market and the wider population. But, if we really want to understand this, we should first ask a slightly different question – "what did the exceptionally low-interest rates of the past 10-15 years change?"

It seems like a lifetime ago that we paid attention to interest rates. We have become so used to their historically low levels that we may have allowed ourselves to forget that the rate at which we borrow and receive returns on deposits has the power to change behaviour fundamentally.

As a result, we have become a nation that, in search of better returns on our savings, has invested in riskier assets to provide a return. Millions of people are now becoming buy-to-let landlords, although recent changes in the tax regime for property investors did undoubtedly start to change that long before higher interest rates came along.

Millions more took advantage of low-interest rates to move home often in the process, bemoaning the changed attitude of banks insisting on stress testing mortgages at interest rate levels that could never happen again.

Therefore, there is hope that borrowers might be better prepared this time around. Whether by luck or design, government and bank policies may well have prevented some people from overstretching themselves the way we saw in the wake of the 2008 financial crash.

All that said, there are some fundamentals that have not changed and show little sign of doing so in the future. There is still – perhaps more so than ever – a tremendous housing shortage, particularly in the southeast of England. I am no economist, but even I can work out that if you have huge demand and undersupply that demand, house prices should (in the longer term) continue on an upward trajectory - the only 'brake' on that being affordability.

This means that, once again, those with cash reserves – particularly overseas investors – will see an opportunity to pick up the slack. To buy into a market where the fundamentals remain strong, but the overarching sentiment and lack of affordability create opportunities to find real value in a market where value has been at a premium for a long time.

Of course, higher interest rates may slow down new house building. It has long been government policy to encourage house building, but with the end of the Help to Buy scheme (which I have written about previously) and no replacement having been announced, coupled with rate rises making it too risky for many - this may mean that large scale house-building will become the domain of the major corporate, institutional and social housing developers to the extent that it hasn’t already.

Overall, it is likely that, in the short term, the market will indeed slow. Anecdotally, I have heard this from many clients and agents I have spoken to. However, as things settle, I do think it is more likely that we will not see a giant crash as we did in 2008. We may see the slowing down as a blessing in the long run.

If you have any further questions, please don't hesitate to email me at or click here to get in touch.

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