House prices in a market with rising interest rates

inkydolphin

Alderbank said:

Deleted_User said:

Higher interest rates cause lower house prices. 

That's quite a claim!
Do you have any evidence for that?

In 2016 interest rates were 0.25%. They are now 4.5%, 16x what they were in 2016.
So have these massively higher interest rates made house prices lower today than they were back in 2016?

Quite the opposite, prices are higher everywhere without exception.

I'm pretty sure they meant higher interest rates cause current house prices to fall, rather than higher interest rates cause current house prices to become lower than they were at any point in the past when interest rates were lower.

TonyMMM

We moved last year - probably at around the peak of the market. We sold quickly and got more than we expected for our property, but had to pay above asking price for the house we bought. Don't have a mortgage and don't intend to move again soon, so not worried about the definite fall in value since.

A neighbour at our old house, who put theirs on the market just before we moved in the autumn is still for sale and has now dropped the asking price twice (about 12.5% down), with little interest apparently. 

Things are very, very different in the market now.

Grizebeck

TonyMMM said:

We moved last year - probably at around the peak of the market. We sold quickly and got more than we expected for our property, but had to pay above asking price for the house we bought. Don't have a mortgage and don't intend to move again soon, so not worried about the definite fall in value since.

A neighbour at our old house, who put theirs on the market just before we moved in the autumn is still for sale and has now dropped the asking price twice (about 12.5% down), with little interest apparently. 

Things are very, very different in the market now.

Its all relative isnt it!

MultiFuelBurner

Of course this time last year prices were also bolstered by the stamp duty holiday up to £500,000. Apparently 1.3million people took advantage and this also bolstered house prices 

K_S

Grizebeck said:

Just a random question here 
Where mortgage rates are rising does this in anyway drive up demand for houses at the "lower" end of the market? Is there any evidence in this from past mortgage hikes ?
Is it wrong to assume that people lower their sights when budgets tighten

The reason i ask if we have brought a "in between house" whilst we find what we want with cash in the bank for this new house and will either rent out or sell on the house once the new one is finished etc

@grizebeck It's an interesting question! I'm only a one person mortgage broker firm so can't say that my experience with clients is representative, but fwiw, this is what I've seen - 

1. My FTB clients have been the most cost-insensitive. Except for one case, none of my FTB clients have put their plans on hold due to the current interest rate environment. From a lender point of view, for young (translates into flexibility on term) couples with 2 incomes, no dependents and and low debt, affordability has remained quite good. The dismal state of renting in cities across the country has also probably played a part in incentivising FTB clients to buy sooner rather than later.
2. The picture is a bit more mixed for my home-mover clients, as middle-aged people with average incomes and dependents have seen affordability go down significantly over the past year or so, so often when I do the numbers, the max borrowing available doesn't allow them to buy the property they want. Plus they always have the option to stay put and a proportion of home-mover clients that I speak with decide to park their plans.
3. Across the board, clients are reconsidering the price band at which they want to enter, two of my clients looking to buy a small house in outer London for a long time settled for flats, that's something I've never seen happen before.
4. Most of my landlord clients are on wait and watch mode, but the ones that are buying are buying 1-2 bed flats in cities. 

Overall, I don't think the demand differential is enough to say that expensive houses will go down in price while cheap properties will rise but in my inexpert opinion, demand for less expensive properties (relative to the area) will hold up better.

Sarah1Mitty2

inkydolphin said:

Alderbank said:

Deleted_User said:

Higher interest rates cause lower house prices. 

That's quite a claim!
Do you have any evidence for that?

In 2016 interest rates were 0.25%. They are now 4.5%, 16x what they were in 2016.
So have these massively higher interest rates made house prices lower today than they were back in 2016?

Quite the opposite, prices are higher everywhere without exception.

I'm pretty sure they meant higher interest rates cause current house prices to fall, rather than higher interest rates cause current house prices to become lower than they were at any point in the past when interest rates were lower.

I would expect them to go back to the last time rates were 4.5% (talk now is of 6% base rate) wages have not risen enough across the board to make up for the cheap credit going away.

inkydolphin

Sarah1Mitty2 said:

inkydolphin said:

Alderbank said:

Deleted_User said:

Higher interest rates cause lower house prices. 

That's quite a claim!
Do you have any evidence for that?

In 2016 interest rates were 0.25%. They are now 4.5%, 16x what they were in 2016.
So have these massively higher interest rates made house prices lower today than they were back in 2016?

Quite the opposite, prices are higher everywhere without exception.

I'm pretty sure they meant higher interest rates cause current house prices to fall, rather than higher interest rates cause current house prices to become lower than they were at any point in the past when interest rates were lower.

I would expect them to go back to the last time rates were 4.5% (talk now is of 6% base rate) wages have not risen enough across the board to make up for the cheap credit going away.

It doesn't happen though - if that always happened house prices would be the same price they were when rates were at 4 5% at any time in history.

CSI_Yorkshire

inkydolphin said:

Sarah1Mitty2 said:

inkydolphin said:

Alderbank said:

Deleted_User said:

Higher interest rates cause lower house prices. 

That's quite a claim!
Do you have any evidence for that?

In 2016 interest rates were 0.25%. They are now 4.5%, 16x what they were in 2016.
So have these massively higher interest rates made house prices lower today than they were back in 2016?

Quite the opposite, prices are higher everywhere without exception.

I'm pretty sure they meant higher interest rates cause current house prices to fall, rather than higher interest rates cause current house prices to become lower than they were at any point in the past when interest rates were lower.

I would expect them to go back to the last time rates were 4.5% (talk now is of 6% base rate) wages have not risen enough across the board to make up for the cheap credit going away.

It doesn't happen though - if that always happened house prices would be the same price they were when rates were at 4 5% at any time in history.

October 1977 prices anyone?  Summer 1962?  What about July 1873 or June 1699?

Grizebeck

K_S said:

Grizebeck said:

Just a random question here 
Where mortgage rates are rising does this in anyway drive up demand for houses at the "lower" end of the market? Is there any evidence in this from past mortgage hikes ?
Is it wrong to assume that people lower their sights when budgets tighten

The reason i ask if we have brought a "in between house" whilst we find what we want with cash in the bank for this new house and will either rent out or sell on the house once the new one is finished etc

@grizebeck It's an interesting question! I'm only a one person mortgage broker firm so can't say that my experience with clients is representative, but fwiw, this is what I've seen - 

1. My FTB clients have been the most cost-insensitive. Except for one case, none of my FTB clients have put their plans on hold due to the current interest rate environment. From a lender point of view, for young (translates into flexibility on term) couples with 2 incomes, no dependents and and low debt, affordability has remained quite good. The dismal state of renting in cities across the country has also probably played a part in incentivising FTB clients to buy sooner rather than later.
2. The picture is a bit more mixed for my home-mover clients, as middle-aged people with average incomes and dependents have seen affordability go down significantly over the past year or so, so often when I do the numbers, the max borrowing available doesn't allow them to buy the property they want. Plus they always have the option to stay put and a proportion of home-mover clients that I speak with decide to park their plans.
3. Across the board, clients are reconsidering the price band at which they want to enter, two of my clients looking to buy a small house in outer London for a long time settled for flats, that's something I've never seen happen before.
4. Most of my landlord clients are on wait and watch mode, but the ones that are buying are buying 1-2 bed flats in cities. 

Overall, I don't think the demand differential is enough to say that expensive houses will go down in price while cheap properties will rise but in my inexpert opinion, demand for less expensive properties (relative to the area) will hold up better.

Thanks thats the kind of qualified answer I appreciate.

[Deleted User]

CSI_Yorkshire said:

inkydolphin said:

Sarah1Mitty2 said:

inkydolphin said:

Alderbank said:

Deleted_User said:

Higher interest rates cause lower house prices. 

That's quite a claim!
Do you have any evidence for that?

In 2016 interest rates were 0.25%. They are now 4.5%, 16x what they were in 2016.
So have these massively higher interest rates made house prices lower today than they were back in 2016?

Quite the opposite, prices are higher everywhere without exception.

I'm pretty sure they meant higher interest rates cause current house prices to fall, rather than higher interest rates cause current house prices to become lower than they were at any point in the past when interest rates were lower.

I would expect them to go back to the last time rates were 4.5% (talk now is of 6% base rate) wages have not risen enough across the board to make up for the cheap credit going away.

It doesn't happen though - if that always happened house prices would be the same price they were when rates were at 4 5% at any time in history.

October 1977 prices anyone?  Summer 1962?  What about July 1873 or June 1699?

Nationwide house price index, Bank of England inflation calculator
May 2023 house price £260,736
Q4 1977 house price £13,150 which inflation adjusted is £72,078
Q3 1962 house price £2,645 which inflation adjusted is £46,056