Property Prices to Fall More with 5.25% Bank of England Rates

Published / Last Updated on 03/08/2023

The Bank of England Monetary Policy Committee (MPC) has today confirmed base rates will rise by 0.25% pa to 5.25% pa.

This is the fourteenth consecutive rise that was widely anticipated and yet again a clear indication that the Bank of England is worried about stubborn high inflation and keen to get to grips with it by reducing the amount of money we all have in our pockets to stop us spending and try to reduce CPI inflation even further which fell in June 2023 to 7.9% pa from 8.7% pa.  That said, the old measure of inflation RPI (Retail Prices Index which includes the costs of housing) did increase in June from 10.3% to 10/7% pa.  The next inflation report from the Office for National Statistics (ONS) is due in 11 days time on 14th August as we all wait with bated breath.


This will no doubt again be painful for borrowers with mortgage term deals ending in the next 6 months but there have been plenty of warnings made by us over the last few years of inflation and interest rate increases after Covid-19 lockdowns. 

Given that both the US Federal Reserve and European Central Bank had already increased interest rates by 0.25% last week, the Bank of England increase was no surprise.

Many doom mongers are predicting a UK house price collapse as well as a full economic recession.  We do not expect a collapse but merely a fall back to prices of around 2 years ago, so many will not lose all of their post lockdown gains.  That said, we have suggested for a while that we do need some form of recession as people are still spending money on travel, entertainment, alcohol, and tobacco as well as ever increasing food prices. 

When we look back to 1990, just after base rates peaked at 14.89% pa in 1989 (mortgage rates at 15-17% pa), property prices fell by 20%, so we do expect a 10-15% fall.  Since 2020, house prices climbed by 7.4% in 2020, 10.8% in 2021 and hitting peak prices with a 9.8% increase in 2022.  Compounded, that’s a 30.66% increase in 3 years, so  do expect significant falls in house prices, but there will still be some ‘fat’ left if you owned or bought before 2022.  That said, many mortgage lenders have already started to reduce mortgage rates in anticipation of base rate falls either late this year or more likely, early next year.  This is why we predict a 10-15% fall in property prices rather than a 20%+ fall.

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