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How Might the New Interest Rate Affect the Housing Market?

What is the housing market?

The housing market is where people either sell or buy houses, whether to live in or have as an investment. 

In Britain, many people own the household they live in. Some are still paying off a mortgage, and others privately or socially rent the property. 

What do interest rates mean?

An interest rate will tell you the cost of borrowing or the reward of saving. 

People borrowing money, the interest rate has changed from what you borrow as a percentage of the total loan sum. So, the higher the interest rate, the more you will have to pay back, this discourages people from applying for loans.

If you’re saving, interest rates will tell you how much money is paid into your account as a percentage of your savings. This allows people to save and build up a bigger deposit faster. 

How are interest rates determined?

The Bank of England decides and sets the interest rate. Once a month, the Monetary Policy Committee of the Bank of England meet and decides if the interest rates need to be changed. The Bank generally will raise the interest rate when inflation is high as this will put people off borrowing money, which will then slow down consumer demand. 

How does the interest rate affect the housing market?

The Bank of England affects the housing market by setting the basic interest rate. When the interest rate is low, it costs less to borrow money to pay for a house. When the price is low, more people will be buying homes, which will mean the cost of homes will be higher due to the demand. 

If the Bank of England increases the interest rate, this will slow down the property market as it will cost more to take a loan out. 

The impact will be felt lower down the housing market chain. First-time buyers are going to be impacted by the increased interest. The number of first-time buyers will reduce. People’s budgets will also decrease due to the increased interest and the higher cost of living, so many will be looking for less than their original budget price. 

Overall, the change in interest rate will mainly affect people at the beginning of the housing market, as it forces them to reduce their budgets and makes it harder to apply for loans. 

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Thomas Winfield
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