Increasing interest rates will not impact house prices – yet

Rising interest rates will have no impact on house sale prices for at least 12 months, the latest research paper from residential market specialists TwentyCi predicts.

And whilst average asking prices have fallen in the last two months, TwentyCi says these are well masked by rises in the last 12 months.

Non-London prices have fallen by 5.5% in the last two months but are still up by 9.5% in the last year (which equates to +£31k on average).

Meanwhile London prices have fallen by 9.7% in the last two months but are still up by 12.2% in the last year (which equates to +£83k on average).

RATES RISING

The Bank of England last raised interest rates to 1.75% on 4th August 2022, which was the fifth interest rate rise since the start of 2022. And with inlflation at its highest since the 1980s City analysts expect more.

The big news is that there is not even a weak correlation, let alone a strong one.”

TwentyCi looked at every Bank of England rate change since the year 2000 – 42 of them – and the correlation between the rate change and average property price sales for 12 months after. The big news is that there is not even a weak correlation, let alone a strong one.

“We, therefore, ended up concluding that interest rate rises do not affect house prices in the 12 months post the rise occurring,” says TwentyCi.

“In fact, for one to five months post a rate change, the opposite effect occurs – rises in interest rates also see rises in property sale values and vice versa. It’s only from month six that prices start to fall.”

But the paper adds: “Interest rates definitely affect the affordability of mortgages, to a certain extent. In fact, things like inflation, the cost of living, employment rates and stability, wage inflation, consumer confidence, and (our best friends) housing supply and demand, all affect property prices much more.”

The next Bank of England interest rate decision takes place at 11am on September 15, 2022.