Abstract
Mortgage based housing markets are interconnected with the financial systems. The mortgages in these markets are tied to the interest rates applied on borrowing in the financial markets. This is the case in the UK where mortgage interest rates are agreed over a fixed period (between 2 and 5 years) based on the Bank of England’s. These restrictions affects the behaviours of home buyers, tenants and investors in the housing market, particularly in cases of financial shocks such as the 2022 UK interest rate shock. Collective changes in behaviours create dynamics that can affect prices, rents and households’ wealth. To understand such dynamics, we introduce an Agent Based Model (ABM) representing the interactions between home buyers, tenants and investors in a housing market. We use the model to showcase the effects of an interest rate shock on the behaviours of the market actors, and in turn on households’ wealth. The ABM indicates that such shock affects less wealthy households more significantly.