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Low interest rates boost house prices

Interest rate rise3

The average price of a home in the UK has increased by more than 40 per cent over the past eight years, since the Bank of England (BoE) reduced interest rates to historic lows, new data reveals.

After the BoE introduced a 0.5 per cent rate – which was later lowered even further to 0.25 per cent in August 2016 – there has a been a significant rise in property values across the country, with homes in some areas almost doubling in price.

Figures compiled by HouseSimple show an average 41.2 per cent increase in values across 100 towns and cities monitored for the survey, including Scotland, the North East, Yorkshire, Midlands, and the South.

Widespread benefits

Although some UK savers have been impacted by the low interest rates over the past eight years, millions of homeowners have increased their equity in their homes substantially.

In Milton Keynes alone, average home values have increased by 77.3 per cent, from £146,903 in March 2009 to £262,241 in April 2017.

House price growth is slightly less extreme in northerly areas, although Glasgow has witnessed 9.8 per cent increases over the past eight years, while Doncaster and Barnsley in South Yorkshire have seen prices rise by almost ten per cent.

Once in a generation

Alex Gosling, CEO of HouseSimple, described it as a “once-in-a-generation low interest rate environment”, with many mortgage customers also benefitting from historic low interest rates on deals.

“It’s been a golden period for UK homeowners, but there are signs that it could be coming to an end as the BoE’s Monetary Policy Committee (MPC) narrowly voted to hold interest rates at 0.25 per cent,” he explained.

In June, three members of the nine-person MPC voted for an interest rate rise, and although this proportion was not the majority required to increase the rate, it was the most votes calling for a rise in almost a decade. Analysts now feel that it is only a matter of time before the 0.25 per cent ceiling is lifted, resulting in the first rate rise for nearly 100 months.

Planning ahead

Mr Gosling added: “House prices are also under pressure from the political and economic uncertainty of Brexit and the fallout from the General Election, and although there is no evidence to suggest that property prices are about to plummet, homeowners and home buyers need to plan ahead.”

It comes after the latest House Price Index from Rightmove revealed that that the General Election had little to no effect on the UK property market, with sales and activity pointing to it being ‘business as usual’ for the industry.

Use our mortgage calculator, created with the Mortgage Advice Bureau, to work out the best deal for you.