Sunday Reads and Listens...AI AI AI, Higher Interest Rates Doing Their Thing on Markets, Building Your Investor Network and Growth By Community

All around the world, higher interest rates are making their presence felt in financial markets. We’ve looked at a few of the places they’ve shown up in previous issues of Net Interest – in fatter margins at banks, lower valuations at private companies, the dismantling of speculative excess in crypto. This week, we look at housing, using the UK as a case study. 

The link between interest rates and housing is pretty straightforward. Higher rates push up the cost of mortgage finance, which makes housing less affordable for borrowers. Given that most home purchases utilise some form of mortgage finance, that is going to have an impact. So in this context, it’s no surprise that house prices have already started to fall. Over the past year, the Bank of England has lifted its benchmark lending rate eight times from 0.1% up to 3%. The rate on a two-year fixed rate mortgage in the UK has correspondingly risen to over 6% – twice the level it was not long ago.

And sure enough, home prices are reacting. This week, two of the country’s biggest mortgage lenders reported a drop in prices. According to Halifax, prices fell by 2.3% in November, their third consecutive monthly fall and the largest drop since October 2008 (when Halifax’s parent company had to be bailed out by the government). Nationwide reported a similar decline, with its CFO warning that in a worst-case scenario, house prices could fall by 30%. Others agree: A recent survey conducted by the Royal Institution of Chartered Surveyors shows a big swing in the number of market professionals anticipating further price declines.