The Bank of England’s Monetary Policy Committee have raised interest rates by a further 50 basis points to combat surging inflation which sits at a forty year high of 9.9%. The rates increase, which is now up to 2.25%, isn’t as bad as some had predicted. The money markets were pricing in a 75 basis point hike expecting the rates to rise to 2.5%. The predicted rise would have been the largest rise in 33 years. The rise today matches the rise of last month that had been the biggest rise for 27 years. The rates may not have rose as fast today as the experts would have expected, but they still expect the rates to rise to 3.75% by the end of this year with more rate rises coming in November and December.

The rise in interest rates has many keeping an eye on house prices. The housing market has remained relatively stable, despite predictions of a looming crash. Many predicted that house prices could face a drop but so far there has been continued growth, albeit at a markedly slower pace than usual. We’ve already previously reported how some believe the tipping point that will cause house prices to fall will be when rates exceed 2.5%. We are now dangerously close to this. If the Bank of England announce any more rises, like they are expected to, the rates will surely exceed 2.5% and we will see if those predictions come true.

However, tomorrow the government are expected to announce plans to reduce stamp duty in their mini budget. The aim will be to stimulate the housing market to boost economic growth. The stamp duty reduction hopes to increase the pool of buyers by making it easier for buyers to move or get their foot on the property ladder. “It may encourage landlords to continue investing in the market, despite increasing fears about pro-tenant legislation making property as investment class far less attractive,” says Ben Nicoll, sales manager at Antony Roberts estate agents, but he also notes that, “it will need to be at least 6 months long to have any impact.”

While many praise the idea of a stamp duty cut Nick Sanderson of the Audley Group, warns that “it is a short-term fix for a housing market that has major flaws. If a blanket reduction is announced, it will only succeed in stimulating some parts of the market and ignores the desperate need for more targeted measures.”

Andy Sommerville, director of Search Acumen, has highlighted the lack of housing stock as a real issue in the market. Unless more houses are brought onto the market then increasing the affordability of buyers just means there are more buyers competing for the same properties which drives prices up further. Sommerville warns that “buyers do need to be aware that savings they make today through SDLT may be cancelled out through elevated mortgage repayments in years to come due to elevated house prices and borrowing rates.”