Interest rate rise could stabilise housing market

A rise in interest rates could ultimately be a good thing for the housing market, says Jonathan Cornell, technical director at Hamptons Mortgages.

The Bank of England indicated in its inflation report last week that there is a 50% chance of inflation rising above 3% within the next six months, which means a further rise in interest rates could be on the cards.

Mervyn King, governor of the BoE, admits inflation is likely to be volatile over the coming months but says it has not made a decision yet to raise interest rates again.

King also says high house prices rather than repayment costs are the biggest obstacle to home ownership.

Cornell says: “People may choose not to buy a bigger house, or first-time buyers may wait to get onto the property ladder. But a decrease in demand for property means a decrease in house prices. This is a good thing as we all want stability in the market and not a boom and bust situation.”

He adds: “Further interest rate hikes won’t push millions into arrears – it’s those living close to the line already that are most at risk.”