The Bank of England warned last week that Britain will fall into recession later this year as it raised interest rates by the most in 27 years, but what impact will this have on the UK housing market?

The Bank of England’s decision to hike interest rates again from 1.25% to 1.75% will increase pressure on households already struggling with the cost of living, as it makes mortgages and loans more expensive, and this will almost certainly dampen sentiment in the housing market, according to Tom Bill, head of UK residential research at Knight Frank.

However, Bill questions the Bank’s latest forecasts and believes that the direction of travel for mortgage costs is less open to debate.

“Irrespective of its accuracy, the risk for the housing market is that the prediction itself could dampen sentiment,” he said.

Bill highlights that the Office for Budget Responsibility (OBR) is the body created specifically to provide economic forecasts, and not the Bank of England.

He commented: “The Bank of England itself said uncertainty around the outlook is exceptionally high, and the UK’s economic performance could be very different depending on the trajectory of energy prices. Any further stimulus measures by the new government after September have also understandably not been included in the assumptions.

“In short, the Bank’s latest predictions will undoubtedly cause some hesitation in the housing market but the extent to which its prophecies come true will be the real acid test.”

For anyone wondering what the latest rise means for mortgage costs, the answer is less open to debate than the Bank’s forecasts, in Bill’s view.

Bill points out that that the average cost of a five-year fixed-rate mortgage has already risen sharply in recent months, and it would appaer the only way is up after 13 years of ultra-low borrowing costs.

He added: “Further increases will dampen demand but there is unlikely to be a cliff-edge moment for the housing market. Mortgage offers typically last for six months and most people are on fixed-rate deals still, which means the impact on demand will be more gradual.

“For the second time in three months, it is worth remembering that watching what the Bank of England does rather than what it says could prove to be more useful for buyers and sellers.”

Mortgage availability falls as average five-year fixed surpasses 4%