Here’s why rising interest rates shouldn’t stop you from buying a property in the UK.

The inflation and rising interest rates story is creating headlines in the macroeconomic environment, pushing interest rates higher hike to 1.25% today.

With rates rising steadily, spreads have narrowed. Lenders therefore will have a lower capacity to absorb an interest rates rise, particularly if they’ve risen further and faster than anticipated. However, strong competition amongst lenders could lead to smaller margins and consumers not being passed on the full rate rise. In particular for higher LTVs where there is more room for spreads to remain higher than historic averages.

Rising inflation in UK

While interest rates are going up however, they are still historically low. Pre -financial crisis of 2008, UK interest rates were at 5.75%. Fast forward to 2022, the rates are at 1.25% and projected to double by end of 2023. At the same time, property prices have been on a consistent increase for the past 6 years despite the economic climate with Brexit, Covid and now the war in Ukraine.

If we look at the interest rates over the last 4 decades, even with the projected increases, it remains a great time time to buy. It is still a good time to secure a mortgage and to purchase a property.

uk property market

The imbalance in supply and demand for UK property pushed annual house price growth to 14% across the UK in March 2022. The dynamics have not shifted and, even though we expect price growth to cool in the latter half of 2022 and 2023, we don’t expect a big drop as demand still over rides supply. The number of new prospective buyers across the UK is 53% higher than the five-year average in Q1 2022, according to Knight Frank data.

As seen above, several factors, including increased mortgage lending margins, robust demand compared to supply and a higher proportion of lower LTV lending, means the UK housing market is still in a relatively robust position.

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