Base rate hikes cause house prices to fall

(Last Updated: 27/07/2023)
7 min read

Average House Price London


Average Sales Volume London


Average House Price England & Wales


Average Sales Volume England & Wales

Key Takeaways for June 2023
  • Bank of England increases base rate to 5% for the first time since February 2009
  • Lowest sales volume for Feb 2023 since 2009 (post financial crash)
  • House prices in England & Wales fall by 2% from a record high in Nov 2022 of £306,564 to £299,409 (Mar 2023)
  • House prices in London fall by 4% from a record high in Sept 2022 of £544,962 to £522,731 (Mar 2023)
  • Property Mark report "The average number buyers per branch fell to 70 in April, down from 93 in March".
  • Zoopla state "One in six house sellers accepted offers on their properties of at least ten per cent less than their original asking price last month"
  • Mortgage approvals for home buyers down 26% YOY for April 2023 (England and Wales)

Post the financial crash the Bank of England (BOE) Base Rate has been 1% or under since February 2009. Whilst at the time it was a protection for many factors caused by the global crash, after a few years the housing market was able to rebuild as lower interest mortgage products were able to be offered. Since December 2021 the base rate started to creep up from 0.1% to 5% this month.

When the BOE base rate goes up, so do the interest rates from mortgage lenders. During the long period that the base rate was 0.1% you could get mortgage products with rates of 1.8%. Now the base rate has increased to 5% you'll struggle to get a better mortgage rate than 6%. Using our mortgage calculator the monthly mortgage repayment is £1,425.47 based on a mortgage of £250,000 repaid over 35 years at 6% which is an increase on the £814.11 if the rate was 1.89%.

Are BOE base rate hikes good or bad?

It can be good and bad. Bad because higher BOE base rate means there'll be fewer mortgage products, fewer affordable mortgage products and fewer buyers wanting to get a mortgage as they could wait a year and get a lower rate.

The good news is that when mortgage lending becomes tighter, there are fewer buyers and banks undervalue mortgages, then sellers will look to sell for under the asking price which makes buying more affordable. We are seeing this now as we see:

Zoopla state:

"1 in 6 sellers accepted offers of at least 10% less than their original asking price in May 2023 (Zoopla). It is suggested this caused by the rise in borrowing costs leading to limited demand and a rise in lower offers from buyers (The Times). Figures highlighted that 42% of sellers were accepting lower offers of 5% or more off the original asking price. This is the highest since 2018".

"Zoopla’s research director Richard Donnell said the figures showed that “buyers are becoming more price conscious”. Zoopla predicted that property prices would fall five per cent in 2023 but noted that “they are still going to be 15 per cent higher than they were before the pandemic (Financial Times)".

For anyone holding off for the BOE base rate to come down, the governor of the Bank of England Andrew Bailey has hinted that rates could remain higher for longer than expected, because inflation has proven to be such a persistent problem. This statement was made at a European Central Bank conference where Mr Bailey suggested that markets were wrong to think interest rates would fall quickly from a peak reached around the end of 2023.

Source: Office for National Statistics (ONS)

Sales volume lowest since the 2009 crash


The number of completed property sales for the month of February is the second lowest since 1995 of 3,901. Only the February after the financial crash was ever lower then this of 3,251. Whilst almost comparable, the average property price in February 2009 was £249,847, however most recent data at the Land Registry has the average price at £531,576. Whilst volume is comparable, what you need to fund the purchase isn't - an increase of 112%.

Sales volume has been falling month on month since Sept 2022 after the Liz Truss MP budget fiasco however a year on year fall of 38% cannot be ignored.

Source: House Price Index (HPI)

England & Wales

The market as a whole hasn't been able to hide away from the challenges London faces as it equally had the second lowest February since 1995 of 37,844 although the gap isn't as close as London. The lowest ever February was 27,949 - 35% different.

It is unsurprising that the volume of sales has fallen after over 50% of mortgage products were pulled post Truss Budget in the final quarter of 2022, the cost of living crisis post Ukraine war with rising fuel prices, inflation in double digit percentages (and not falling fast enough) and then the rapidly escalating BOE base rate to combat inflation has meant affordability has tightened. As you'll see next, mortgage lending is down and so will sales volume until we see a static or reducing base rate.

Source: House Price Index (HPI)

Mortgage approvals lowest since Feb 2009

Bank of England data shows that mortgage lending to purchase property was down by 26% YOY to 48,690 in April 2023 - similar year on year decline seen in total sales volume in England and Wales. This is 3rd lowest April and has been falling month on month since September 2022.

The issues noted above are echoed in this data as buyers struggle to get a mortgage because mortgage lenders adjust to monthly BOE base rate changes and remove a large number of fixed rate deals. Why sell a fixed rate at 4% when in a few weeks you can get 5%?

What about the remortgage market?

If it is tough for buyers, it'll be tough for anyone remortgaging as the number of approve mortgages in April 2023 was down YOY to 29% at 32,495. This could be linked to:

  • Unable to afford a new mortgage based on current interest rates; or
  • Whilst interest rates were low more people secured longer fixed terms (5 or 10 years).

Source: Bank of England

Housing supply never meets demand

The government have stated for the last 10 years that we need 300,000 new homes to meet with the demand, however as you can see below, the target has never been reached. This inflates house prices because without enough fresh housing stock and with not enough home owners selling the average house price will remain higher; especially for new builds where you pay a premium (just like buying a new car).

What our survey revealed about homebuyers
Our survey, conducted by YouGov, reveals the top challenges faced homeowners when buying their most recent property, plus the true costs of defects when skipping a home buyers survey.

What are homebuyers looking for?
Andrew Boast FMAAT MIC
CEO and Author | SAM Conveyancing

The housing market is in a pickle at the moment. The number of available mortgage products at an affordable rate for first time buyers are low and those that can afford to buy, can they also cover the costs of all of the other cost of living issues that come with owning a property?

The fall in house prices by sellers isn't a touch on the growth seen over the last 14 years. I can see a large number of home owners who are outside their mortgage fixed term looking to sell and downsize or even get out of the housing market. Affordability is crucial and whilst the Government is in talks with mortgage lenders, if home owners are struggling, the mortgage holidays or delayed repossessions doesn't stop the debt piling up. The end result, sell or be repossessed.

The housing market needs fresh stock either from sellers or new builds. The latter isn't meeting demand so unless more sellers come to sell then the volume of sales will continue to fall.

I anticipate house prices to continue to fall whilst the Bank of England base rate remains at the highest it has been since February 2009. This means first time buyers may decide to hold off, however from the clients I speak to, if they can afford to buy their first home they will, and make it work once they move in.

Sources: Latest data from - Bank of England, UK House Price Index, ONS and Property Mark (NAEA).

Andrew Boast of Sam Conveyancing
Written by:
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Caragh Bailey, Digital Marketing Manager
Reviewed by:

Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.

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