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The effect of interest rises on the Rutland Property Market

The current average value of a property in Rutland currently stands at £337,250 and the base rate is at 0.5%.  In many of my articles, I talk about what is happening to property values over the short term (i.e. the last 12 months or the last 5 years), but find out what effect interest rises will have on the local property market we need to go back over 40 years, to 1975 when the average value of an Oakham property was £16,327!

Back then, the average salary was £2,291 and average car was £1,840.  A loaf of bread was 16p, milk was 28p a pint and a 2lb bag of sugar was 30p.  Inflation has increased prices, so comparing like for like, we need to change these prices into today’s money.  In real spending power terms, an average value of an Oakham house in 1975, expressed in terms of today’s prices is £148,185.

During the last 2 property boom years of 1989 and 2007 there was a significant uplift in the cost/value of property (when calculated in today’s prices).


Before we move on, hold onto the thought that you can quite clearly see from the table, in real terms, properties are cheaper today in Oakham than they were in 2007!

Interest rates have a strong influence on inflation and property values, principally because changes in the interest rate affect the cost of mortgage payments for homeowners and they affect the flow of foreign currency in (or out) of an economy, thus changing the exchange rate and prices we can sell our goods and services abroad and prices we pay on imports.

When interest rates rise, it has a substantial effect on increasing the monthly cost of mortgages.  Higher mortgage payments will discourage prospective homebuyers or people looking to move up market (meaning their mortgage payments go up) – thus making it comparatively cheaper to rent.

Furthermore, the high cost of mortgage payments sometimes also pushes some existing home owners to sell, meaning there is an increase in house sellers and a decline in house purchasers, and when supply is increased and demand falls, (house) prices fall.  Another fallout of a rise in mortgage payments is a rise in repossessions, flooding properties onto the market and depressing property values.

High interest rates caused property values to fall in mid 1970’s, early 1980’s and most recently, the early 1990’s (who can remember the 15% mortgage rate?) Conversely though, the drop in property values in 2008/2009 was not due to interest rates, but due to the credit crunch and global recession.

It is also possible that when interest rates increase (which they will from the current 0.5%), property values can also continue to rise (it happened throughout the mid to late 1980’s and again between the boom years of 2002 and 2007).  When confidence in the British economy is good, then historically the British have invested in property, notwithstanding the rise in interest rates.

Other factors influencing property values include the shortage of supply, whether homeowners have a variable or fixed rate mortgage and mortgage lending criteria; 90.6% of new mortgages taken in the last quarter were at a fixed rate and 66.2% of all mortgaged homeowners are on fixed-rate mortgages, therefore, they will not notice the effects of higher interest rate payments until they re-mortgage in a few years’ time creating a time-lag between higher interest rates and the effect on property values.  

I think the final point is this affordability is the key and in real house price terms, it’s cheaper to buy a home today than it was in 2007.

If you are interested in finding out the real value of your Stamford or Rutland home, please contact us and we will be happy to carry out a property market valuation.