> Very (very!) roughly, if long term mortgage interest rates half, we would expect property prices to double.
This is only really true if interest payments dominate capital repayments. A move from 10% to 5% (which happened in the years 1995-2005 [0]) might cause prices to double, but a move from 0.5% to 0.25% won't.
On the other hand, it's instructive to play with a mortgage repayment calculator. You can get a five-year fixed rate on a 25 year mortgage for 2% per year at the moment: that means £424 / month. If the rate increases to 3%, you pay £474/month. That's an 11% increase in mortgage payments - i.e. an 11% drop in purchasing power. So either people pay more on their mortgages or house prices drop.
The market is only pricing in a rate hike of about 0.4% in 2018. All other things equal (which they never are) the pricing of swap rates suggests a drop of 5%. It's worth remembering we're in a hiking cycle.
This is only really true if interest payments dominate capital repayments. A move from 10% to 5% (which happened in the years 1995-2005 [0]) might cause prices to double, but a move from 0.5% to 0.25% won't.
On the other hand, it's instructive to play with a mortgage repayment calculator. You can get a five-year fixed rate on a 25 year mortgage for 2% per year at the moment: that means £424 / month. If the rate increases to 3%, you pay £474/month. That's an 11% increase in mortgage payments - i.e. an 11% drop in purchasing power. So either people pay more on their mortgages or house prices drop.
The market is only pricing in a rate hike of about 0.4% in 2018. All other things equal (which they never are) the pricing of swap rates suggests a drop of 5%. It's worth remembering we're in a hiking cycle.
[0] http://www.bankofengland.co.uk/boeapps/iadb/fromshowcolumns....