The Effects of Mortgage Rates on Real Estate

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Have you ever wondered what the relationship is between mortgage rates and real estate? It’s complicated, but understanding it can help you plan for how your home will perform in the future based on current market conditions. 

Here’s what you need to know about how mortgage rates affect real estate in the UK:

Mortgage Loan

The two most commonly used mortgage loan types are fixed and variable rates. Fixed-rate mortgages (FRMs) feature a set interest rate that never changes during the term of your loan. 

Variable-rate mortgages (VRMs), however, track changes in an index like Treasury bills, which tend to reflect short-term market trends more than long-term trends.

Mortgage Calculator

The best place to find an accurate mortgage rate is online, with a mortgage calculator. 

With just a few pieces of information, you can get an estimate for how much your monthly payments will be, and decide if that figure fits into your budget. 

The best thing about most calculators is that they take into account all current market factors—from inflation to taxes—so you know what’s going to affect your rate before you even talk to a bank.

What is Affected by Mortgage Rates?

Mortgages and home-buying trends can be affected by several factors, including your credit score and income. But one of the most important factors are interest rates: 

When interest rates go up, home prices go down, simply because it’s more expensive to buy a house.

  • Property Prices

Property prices tend to fall in areas with higher interest rates because people are less able to afford homes. 

This is partially down to affordability, but also because lenders are less likely to offer mortgages at higher rates. Because fewer people buy homes in these areas, demand drops and so does property value. 

The reverse is true in places with lower mortgage rates; people are more willing and able to pay for homes there, creating an increase in demand and subsequently causing values to rise accordingly.

  • Mortgage Applications

Higher interest rates would mean more qualified buyers, as they would be more eager to secure a low-rate mortgage. 

But as rates rise, applications for new mortgages do as well. In fact, housing experts consider a 15 percent rate increase from today’s levels to represent severe volatility in real estate markets. 

Following such an increase, you might expect to see a crash in home prices and a downturn in home construction activity.

  • Homes Bought by First Time Buyers

There’s a lot that goes into getting a mortgage and buying a home, but one thing you can bet on is that your financing will likely include a significant portion of interest. 

Whether your mortgage rate is higher or lower than others will affect not only how much interest you pay overall, but also whether or not you even qualify for a loan. 

Most first-time buyers get pre-approved so they know what kind of monthly payments they can expect to make.


It’s important to remember that mortgage rates aren’t going to change overnight. 

As you can see from our list, a 0.25% drop in a 2-year Treasury bill, a 30-year fixed-rate mortgage, and a 15-year fixed-rate mortgage will all be felt differently.

Are you in need of a mortgage but worried about your poor credit history? Want to move forward in getting your loan, but aren’t sure where to start? Want to learn more about bad credit mortgages? We researched the subject at this link.

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