High Inflation and Rising Interest Rates – How Will It Impact Buyers, Sellers, and Property Owners?

Given the current economic climate and the impact of rising interest rates, high inflation, the repercussions of the government’s mini budget which caused such volatility in the markets and the significant increase in the cost of living, households and investors across the UK have, not surprisingly, expressed concern about the future of their finances.

The Bank of England raised interest rates by 75 basis points at the start of November 2022, taking it to 3% – the biggest increase for almost 30 years. Subsequently, those with mortgages, loans or credit cards are facing high repayments that could, potentially, jeopardise their financial status.

Furthermore, inflation continues to accelerate at an unprecedented rate.

According to the Office for National Statistics, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose to 10.1% in September 2022.

This pushes up the cost of living, forcing consumers to pay more to fill up at the petrol station, purchase groceries, pay their utility bills and cover their property taxes. It also has a significant impact upon the property market as a whole.

However, despite all the turmoil, house prices across the UK have been fairly buoyant. There are several factors behind this. The increase in remote working has seen a higher demand for larger houses to accommodate home working so this has driven some of the demand. This is starting to slip back a bit now as more firms are advising staff to get back into the office. This is slowing things down in the country market slightly.

Another factor is household savings. During the Covid lockdowns certain groups have been able to save. From a national perspective, this has amounted to around £200 billion. This has impacted the demand side of the market.

The other factor that is keeping house prices stable is the short supply of new homes. Planning restrictions combined with supply chain problems has led to delays in construction. This, in turn, as kept house prices elevated.

With everything that is going on in the property market currently it’s difficult to be truly accurate about anything. In this article, I will attempt to explain how the current high rate of inflation and increase in interest rates could potentially affect buying and selling a property, land development, mortgage repayments and the state of the housing market as a whole.

Whilst it is hard to find many positives in the current situation, I will give our view on what might happen over the next few months.

A bit of context and perspective

As bleak as the financial forecast may appear at first sight, the economic factors outlined above may not be as catastrophic as they appear.

Although interest rates are indeed rising, they are still comparatively low compared to what we have experienced before. Those of us with long enough memories will remember when interest rates were soaring to eye-watering levels.

For comparison’s sake, in October 1989, the UK interest rate hovered at an astonishing 14.88% and slowly reduced to around 7.5% in June 1998. However, over the past two decades, we’ve become accustomed to figures as low as 0.1% (March 2020). Therefore, the current increase to 1.75%, although problematical for many, certainly isn’t as drastic as we might think.

*Figures: The Bank of England.

Of course, none of us welcome a rise in interest rates being passed down to our mortgage payments, but some perspective and understanding of the bigger picture helps to keep them in context.

The latest increase in interest rates is, in fact, a bid to slow the acceleration of the cost of living, encourage both borrowing and saving, and hopefully help stabilise the economy in a very volatile world.

The housing market has always been a moving feast. Some commentators forecast a housing crash whilst more considered views of the market expect mainstream UK house prices  to fall by 10% in 2023 but still end up rising by a net 6% over 5 years.

Everything is pure speculation at the moment.


For sellers, there’s clearly a lot to think about currently. Affordability of a new home, running costs and mortgage payments to name just a few.

That being said, buyer demand is still currently high in the UK and especially in ‘destination’ locations such as Bath and Bradford-on-Avon with demand still outstripping supply. There will, of course, be a certain degree of uncertainty whilst people wait to see how the economy hopefully recovers under Rishi Sunak.

Having said that, sellers are still in a strong position. Buyers will potentially make good gains on the sale of their property, and this will be offset against the purchase of their new property. The recent cuts in stamp duty will also encourage more buyers to make this investment.

For buy-to-let owners, knowing the best time to sell or hold is a perennial problem. In a high-inflation environment, it is best to own assets that inflate with inflation and property is certainly one of those. Higher rental yields can be gained as well, especially if buyers take advantage of the lower cost of apartments to rent.

Of course, maintenance and mortgage payments are higher than before and could potentially increase, so it’s a balancing game that many property investors are accustomed to.

Selling your buy-to-let now depends entirely on your personal circumstances. Holding and continuing to rent out is probably the safer bet but there will always be opportunities to sell at a good price. The demand for buy-to-let is certainly still there.

Existing property owners

If you’re an existing property owner, you could see an increase in your mortgage payments, unless you opted for a fixed-rate mortgage.

For those on variable rates, now is the optimum time to revisit your mortgage deals and see whether you could switch to a short-term fixed-rate deal that can help reduce your repayments until the market conditions change. There are still some good deals available so now is the time to act.

Unfortunately, these potential higher monthly mortgage repayments could place a further strain on people’s financial situation. Alongside the current 14.6% increase in groceries and incredible hike in fuel costs, this could make it harder than ever to afford daily costs.

However, mortgages are for the long term, so we need to be mindful of that. Despite the current situation, the affordability of mortgages is unlikely to be affected over the long term and investing in property is still a financially-astute option because it usually increases in value over time.

Rental yields are also likely to increase, putting buy-to-rent property owners in a stronger position than before.

New builds

During times of rising inflation, it generally costs more to buy the materials and labour needed for constructing new properties and land development. Planning restrictions and supply chain bottlenecks have also made it even harder to obtain these key materials.

However, developers don’t always pass these increases down and are likely to look for lower margins to attract buyers in the short term. As the UK economy stabilises and the value of the pound increases again, this is likely to ease, making construction easier than before.

Developers may also look to acquire cheaper land to absorb any increase in costs which would keep the price of new builds relatively stable for first-time buyers.


Twelve months ago, house prices were on the increase in the UK. But, counter-intuitively, the ongoing hike in inflation and interest rates have helped to stabilise the market and reduce the rate of price increases.

Unfortunately, the cost of borrowing has also increased, making it harder for buyers to afford these increased mortgage repayments alongside other soaring costs.

According to the Bank of England, lending rates for new fixed-rate mortgages rose across all loan-to-value (LTV) ratios by between 8 and 25 basis points, with high LTV mortgage rates returning to peak levels last seen during the height of the pandemic.

It could also be more difficult to get a mortgage as many lenders may be forced to reduce the income/affordability multiples which means lower lending rates.

However, the cut in stamp duty could compensate for this increase in costs and make buying a property a more attractive investment than before. Considering that interest rates could climb even higher, it’s better to view any property purchase as a long-term investment.


Despite the sensationalism and hyperbole of the media, the high increase in interest rates and inflation should not impact whether you should buy or sell a property this year or in 2023.

We’ve seen larger increases in the past and, with the intervention of the Bank of England and the appointment of Rishi Sunak as prime minister, the state of the economy should hopefully stabilise over the coming months.

There is no doubt that this is a rocky time for the economy and the housing market in general but at Cobb Farr we remain upbeat. House prices in the area are levelling out, making them more competitive and attracting new interest. At the time of writing mortgage rates have reduced a little now that the markets have settled. We are still seeing a strong demand for property in the Bath and Bradford-on-Avon areas, and there is still the appetite for buyers who want to upgrade and live in such a desirable location.

The same is true for investors. The reduction in prices has seen a strong interest in modern apartments and there is always a consistent supply of property developers looking to revamp period properties that may have fallen into a state of disrepair and where there are significant opportunities to make a good profit.

Confidence in the market is always a tricky balance. Bath and Bradford-on-Avon’s status as prime locations has always protected them from the volatility that can hit other parts of the country, but we shouldn’t be complacent about that. There is still more demand than supply in our part of the world but hopefully, as things start to stabilise, homeowners will begin to feel confident in the market and start listing their properties.

In the meantime, we’re here to help. If you are looking for the right home for your family or are interested in investing in the area, we would be delighted to guide you.

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