As the average house price grew by 10.2% in the UK in the twelve months to March, the Bank of England took notice. The March average house price growth was the highest since August 2007. The Bank is now carefully monitoring the housing market boom during the start of pandemic recovery as it could lead to a sustained period of inflation. This in turn could lead to a need to increase the standard base interest rate.

Most believe that inflation related to the continued strength in the housing market will be short lived, but it is being watched closely by the Monetary Policy Committee (MPC).

The current level of inflation is at 1.5% with the target rate for the UK at 2.0%. Due to the continued strong demand in the housing market it is expected to continue to increase over the coming months.

There could be a slowdown in demand from home buyers when the stamp duty holiday hits a deadline at the end of June. The end of the month deadline will see the tax savings reduced and then will end fully at the end of September. Perhaps a big part of the recent demand in the housing market could be a reflection of the rush to buy and benefit from the savings. 

The current standard base rate set by the MPC last year in response to the economic impact by the global pandemic is at 0.1%, which is an all-time historic low. 

Borrowers can, of course, currently find very attractive rates on mortgages and remortgages. Being aware of the possible impact of rising inflation will help borrowers take action before rates move upward.

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