Could rising interest rates cause property prices to fall?

Property markets worldwide are showing signs of slowing in response to higher interest rates with some going into reverse already.

Here, the annual rate of growth in property prices nationally had slowed to just below 8% by the end of last year, the latest measure form the Central Statistics Office this week showed.

In December of 2021, the rate of growth in prices was almost double that.

The latest pullback marks a continuation of a trend which has happened largely in tandem with the cost-of-living crisis.

As well as the cost of utility bills, fuel and groceries rising steadily, mortgage servicing costs have started to increase since the European Central Bank embarked on its latest interest rate hiking cycle in the summer.

While many householders moved quickly to fix their payments in advance of the rate hikes, many more will be coming out of fixed rate arrangements in the months and years ahead and will be entering a vastly changed – and much more expensive – rates regimes.

For others, who will be entering the property market for the first time, they too will likely be meeting vastly more expensive mortgage costs in the years ahead.

So, to what extent is pricing in the mortgage market likely to impact property prices and could it lead to prices falling?

Percentage increases back in single digits

Most analysts agree that interest rate hikes will contain house price growth to some extent.

The kind of double digit percentage increases that we saw last year and into this year are unlikely to be revisited in the immediate future.

And indeed we have already witnessed quite a considerable lag on prices in the space of a few months.

Much of that can be accounted for by the rapidly rising cost of owning a home.


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