Will rising house prices lead to increased mortgage rates?

Published 3rd of June, 2021

The Bank of England is monitoring house prices assessing whether the current house price boom needs to be kept in check with an increase in bank rate. Sir Dave Ramsden, the deputy governor of the Bank of England responsible for Markets and Banking told the Guardian Newspaper that the Bank of England is carefully monitoring UK house prices and their impact on inflation for the economy as a whole. He said that “There is a risk that demand gets ahead of supply and that will lead to a more generalised pick-up in inflationary pressure. That’s something we are absolutely going to guard against. We are looking carefully at the housing market and a raft of real-term indicators”.

Consumer Price Inflation is currently at 1.5% and is expected to temporarily rise above 2% in the coming months. However, if the rise in inflation was not temporary, he said “we know what to do about that. We can push bank rate up from its historically low level [0.1%] and we know what that will do to demand.” You can read the full article here 

What could a rise in bank rate mean for me? 

Many mortgages are linked to Bank Rate either directly or by lenders variable-rate mortgages. If the mortgage rate on a £100,000 25 year mortgage increased by one percentage point from 2% to 3% the mortgage payments would increase by around £50 per month for a repayment mortgage and around £80 per month for an interest-only mortgage.

To see how a change in mortgage rate would impact your mortgage payments try out our mortgage payment calculator

Housing Hailey

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