More and more of us will start to wonder what will happen to property prices when interest rates keep rising. There’s a difference between being up to your eyes in mortgage debt to get onto the housing ladder and having a lengthy fixed rate mortgage you can now easily afford. Dinner tables around the country will see the property price discussion become far more frequent in future months as the issue becomes a hot topic. One-third of all homes in the UK are mortgage-free.

The truth is that rising inflation will cause interest rates to follow. But rising inflation usually pushes up property prices in the medium term. In fact, over the last four decades property prices have risen about 400 per cent and that was with controlled inflationary pressures.

The FT reports that – “Considering double-digit property prices growth, you might think rising interest rates would take some heat out of the market. In a recent note, research group Capital Economics described property as the “weak link” as interest rates rise. Nevertheless, it predicted rates would have to get to around 4 per cent to trigger price falls unless quantitative tightening causes a greater economic wobble than expected (rising unemployment would spook mortgage lenders much more than rising interest rates).”

This analysis forgets one thing though. When the pandemic got itself into full swing and the government created the furlough scheme – savings rocketed. Then the government significantly reduced stamp duty for a limited period, which caused a buying spree of property not seen since before the 1988 property crash. In other words – transactions shot up, taking future sales away from the market. In the late 1980s and early 1990s – the big problem was that no one put their properties on the market because they couldn’t find a replacement to move to.

Today, the average estate agent has just 26 properties for sale – a drop of a fifth in the last year alone, with no sign of that fall slowing. Much of that is caused by property arriving on the market and selling much quicker.

Danny Luke, from Quick Move Now, which provided national data sets for property listings said – “As you can see from the figures, the number of properties coming to the market has fallen significantly in most areas, and nationally we’ve seen a fall of 21%.”

Luke went on to add – “Every region of England and Wales has seen significant rises in the percentage of housing stock that is sold subject to contract. This demonstrates high demand for property, despite rising interest rates, rising property prices and significant increases in the cost of living. Many property experts predicted a stabilising of property prices or perhaps even a slight fall in prices in the first part of this year, but that price correction is yet to materialise, despite mounting external pressures.”

And those mounting pressures are mounting a lot quicker than many expected. Confidence in any market of value is key and many households are already tightening their belts in fear of disposable incomes vapourising in the face of rising costs of the basics – food and energy especially.

The outlook for property prices is that they will cool to probably zero (inflation) by the time data becomes available at the end of the year (Q4) or the very beginning of next year.