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Rising mortgage rates will cause house prices to cool in H2, Capital Economics predicts

  • 06/01/2022
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Rising mortgage rates will cause house prices to cool in H2, Capital Economics predicts
Existing factors fuelling housing demand will sustain activity in the first half of 2022, but prices will cool in the latter half as rising rates weigh on demand.


According to Capital Economics’ housing outlook, increased household cash savings, remote working and rates remaining at record lows for now will strengthen demand in the near term. 

It referred to Zoopla and Rightmove reports which revealed heightened levels of searches during December, as well as reports from the Royal Institution of Chartered Surveyors (RICS) suggesting buyer demand continued to outstrip supply. 

However, with inflation predicted to reach a peak of seven per cent this year, Capital Economics forecast there will be four more rate hikes to curb this taking interest rates to 1.25 per cent. 

The firm predicted this would bring the average rate on newly-drawn mortgages from its current low of 1.5 per cent to 2.4 per cent by the end of the year. 

Andrew Wishart, property economist at Capital Economics, said: “Combined with the large rise in house prices since the pandemic began, that will push up mortgage payments as a share of income to its highest since 2008.” 

However, he noted that house price growth was not yet in its correction phase. 

He added: “Overall, house prices look set to surpass most forecasters’ expectations in the first half of the year, but then as the rising cost of mortgage finance weighs on demand.  

“Our forecast of a five per cent year-on-year rise in prices in Q4 2022 compares to a consensus expectation of 2.5 per cent.” 

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