As data reports are being released, it is becoming more evident that what experts predicted could be materializing. The housing market is becoming different. It is leaving behind the era where buyers showed up no matter what. The resilience is breaking down. Caution is setting in and affordability is an issue as interest rates rise. The housing market is losing buyers, and homeowners don’t need that to happen, especially now.

New homeowners are being encouraged to take preparations for difficult times ahead. Many will be facing interest rates very different from the ones they were used to due to eight consecutive increases to the standard base interest rate by the Bank of England’s Monetary Policy Committee (MPC). In simplest terms, the interest rate determines the cost of borrowing. Last December, the base rate was at an all time historic low of 0.1%, now it is 3.0%. Homeowners coming off a fixed rate at the end of their mortgage term could find affording their repayments difficult. 

The Bank of England’s Monetary Policy Committee (MPC) voted during their November meeting to raise the standard base interest rate from 2.25% to 3.00% with a 0.75% hike. The increase is the largest since 1989 and was the eighth consecutive rate rise so far in an effort to control inflation. Along with the rate hike came a warning from the Bank that the next two years could be quite difficult for the economy.

The latest data from the Bank of England on the UK housing market reveals caution as consumers are starting to borrow less with rising inflation and rising interest rates. In September, mortgage approvals reached 66,800, which was down from the 74,400 reported in August. The borrowing value remained relatively steady at £6.1bn. Experts point out that the slowdown in the market occurred before the mini-budget announcement on 23 September, meaning economic responses were not likely influencing buyers.

The Bank of England’s Monetary Policy Committee (MPC) will be meeting this Thursday after having not met since September. The meeting had been due to follow the budget announcement today which would have either put more or less pressure on the MPC to respond to inflation. When the mini budget was announced earlier in October, forecasts shifted from the MPC hiking the rate by 0.50% to a possible 1.0%. The budget has now been delayed until 17 November by the new Prime Minister Rishi Sunak. Currently most polls show economists planning for the meeting to result in a 0.75% increase that would shift the Bank’s standard base interest rate to 3.0%.

The UK housing market is forecast to see a decline next year due to higher interest rates, inflation, and continued low supply of available properties for sale. The decline could be the deepest in more than a decade. Home buyers are expected to exit the market as affordability becomes an obstacle and mortgage lending could reach a low not seen since 2011. Though while mortgage lending could slow, remortgage lending will likely continue to grow.