The ripple effect: exploring the link between interest rate rises and the sales and lettings markets

Impact on the sales market

When interest rates rise, it often has a direct effect on the sales market, especially for those looking to buy property. This is because an increase in interest rates often leads to an increase in mortgage rates, making it more expensive for potential buyers to secure a mortgage.

This can lead to a decrease in demand for properties, which in turn leads to a decrease in sales activity and, ultimately, a drop in property prices. Those who have already taken out a mortgage and are locked into a fixed interest rate will not be affected by this, but for those who are still in the process of buying or looking to enter the market, an interest rate rise can have significant consequences.

It's important to note that a small increase in interest rates is unlikely to have a significant impact on the sales market. However, if interest rates continue to rise, this could lead to a greater impact on property prices and the sales market overall.

Impact on the lettings market

s interest rates continue to climb, the ripple effect on the sales and lettings markets is becoming more and more evident. With an increased cost of borrowing for both consumers and businesses, the impact of higher rates can be felt throughout the housing industry. What is the link between interest rate rises and the sales and lettings markets, and what it could mean for buyers, sellers, landlords and tenants? From the impact on affordability to what this could mean for house prices, let's look at how rising interest rates can affect the property market.

What is an interest rate rise?

An interest rate rise occurs when a central bank, like the Bank of England, increases the cost of borrowing money. This means that banks will have to pay more to borrow from the central bank, and they may pass on this increased cost to their customers through higher interest rates on loans and mortgages. Higher interest rates can also affect savers, who may receive more interest on their savings accounts, but this is less common.

An interest rate rise is typically used to control inflation by making it more expensive to borrow money, thereby reducing the amount of money in circulation. It can also be used to stabilise the economy during times of economic uncertainty.

How do interest rates impact the economy?

Economists have warned that Britain is now on course for recession – predicting the bigger-than-expected interest rate rise by the Bank of England will hit the economy hard.

The latest rate hike makes the cost of paying back mortgages, other loans and credit cards more expensive but should mean people get a better return on their savings.

When interest rates rise, it has a direct impact on the overall economy. One of the main effects is that it becomes more expensive for businesses and individuals to borrow money. This can lead to a decrease in consumer spending and investment, which in turn can slow down economic growth.

Higher interest rates also affect the housing market. With mortgage rates increasing, it becomes more expensive for potential homebuyers to finance their purchases.

An interest rate rise can have a direct impact on the lettings market. When interest rates increase, landlords may find themselves struggling to keep up with their mortgage payments. As a result, some landlords may decide to sell their properties, reducing the overall supply of rental properties available.

Furthermore, with higher mortgage rates, landlords may also be less inclined to invest in additional properties, causing a slowdown in new buy-to-let investments. This could result in a reduction in rental property supply, causing rental prices to rise, which could lead to tenants struggling to afford rent.

To combat the potential effects of an interest rate rise, landlords need to consider financing options to ensure that they can continue to make mortgage payments and maintain their property portfolios. This may include seeking advice from mortgage advisors or exploring different financing options to find a better deal. At The Apartment Company, many of our clients have had success using mortgage advisors Willowbrook.

Looking for calmer waters

We are here to support our clients through whatever the property market brings. If you are a buyer, seller, landlord or tenant, we work with you to ensure a smoother experience.

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