Last week, The Bank of England’s Monetary Policy Committee raised the interest rates up to 2.25% to combat inflation that sits at a forty year high of 9.9%. The government’s answer are reformations to the stamp duty tax.

Some experts are predicting a drop in house prices if interest rates rise to 2.5% but so far, the prices are still climbing. The rate of the climb has begun to slow but the market remains markedly resilient to opposing factors, such as the cost-of-living crisis which is eating into potential buyers’ wallets and limiting their spending and saving power. The upwards trajectory of house prices is being driven mainly by the fact that demand for new homes far outstrips the available stock. With more buyers competing for the same properties the easiest way for a buyer to win over against another is in putting up more coin.

Although, the auction market is also seeing success and value in those buyers who can commit to the faster timescales. Speed is becoming a high priority for sellers in this uncertain market as most predictions seem to sway toward a looming house price crash.

In a time where the value of the pound has fallen to its lowest level since 1971, eyes turned to the government’s mini-budget last Friday to see what, if anything, they were planning to do to counteract the nation’s current economical state. The answer provided comes as reformations to the stamp duty tax. The reformations are hoping to stimulate the housing market to continue to boost economic growth. The reformation doubles the level at which people will start paying from £125,000 to £250,000. The aim here is to combat the dwindling pool of buyers as more and more are finding the rising costs are pricing them out of the market.

The stamp duty reformations are also specifically targeting first-time buyers, who are always hit hardest by rising costs and issues of affordability, by increasing the level they will pay to £425,000. Up from £300,000. The governments plan will also allow first-time buyers to access the relief when they buy a property costing less than £625,000 instead of the previous £500,000. These reforms mean that a third of all homes in England become exempt from stamp duty, with that jumping up to two thirds of homes for first time buyers.

The question remains whether the stamp duty reformations will be enough to boost the housing market. The worry is that by reducing the stamp duty to create more buyers, it will just increase the competition over the market’s lack of stock and drive prices higher and further out of reach for many. One thing that has always held back first-time buyers is in raising the initial funds for the mortgage deposit and the stamp duty reformations will do nothing to help with that aspect. In fact, if prices are driven up further the deposit a buyer will need will naturally go up as well. Those in renting will already find it hard to save for a deposit and now they have to compete with the rising costs-of-living. A renter today will on average get one less room now than what the same money would have gotten them two years ago. Many don’t have the option of downsizing to a smaller rental property and so their ability to save for a deposit is greatly hindered.

Combine the affordability issue with the rising rates, and mortgages are quickly disappearing as a viable option for many. Almost 300 mortgage deals have been withdrawn by banks and building societies already. Those still on offer come with huge borrowing costs which limits how much a potential buyer can spend on a property. As most first-time buyers will be relying on mortgage packages in order to buy their first homes, the limits they place on their purchasing power are going to be largely unaffected by the stamp duty reformations as they aren’t really going to affect a buyer’s monthly cost. The levels by which mortgage providers are pulling deals an raising interest payments haven’t been seen since before the 2008 financial crisis and property experts are predicting that house prices will fall by at least 10% next year.

Andrew Wishart, a senior property economist at Capital Economics has predicted a drop of between 10%-15%. He claims, “the rise in market interest rates that has already happened will push up mortgage rates to at least 6% and reduce the size of loans that lenders can offer. The resulting drop in buying power makes a significant drop in house prices inevitable.”