Higher interest rates will reduce demand in the property market and lower house prices, an analysis by KIS Finance has found. 

The impact of the recent rate increases on an average buyer is significant, KIS Finance said. A customer who purchased property in October 2021 for £220,000 and needed a mortgage of £198,000 with a five-year fixed rate of 2.5% would have to pay £745 monthly over a 32-year term. However, a customer purchasing the same property with the same terms at the current rate of 6.15% would have to make monthly payments of £1,185, a 59% increase. 

According to KIS Finance, a basic rate taxpayer who purchased a buy-to-let property for £152,000 in October 2021 and was approved for a mortgage of £114,000 at a five-year fixed rate of 2.19% would need a minimum monthly rental income of £513 to cover the loan, considering that the rental income was stress tested at 4.5%. Purchasing the same property today at the current 5.39% rate would require a rental income of £968 per month, with the lender having increased its stress test calculator to 8.49%.