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  • Writer's pictureDan Luxon

UK Housing Market - May

The UK housing market, whilst being much better than it was last year, has hit a wall and started to slow right down, due to the lack of rate cuts from the Bank of England. Mortgage rates are slowly but surely getting better, but the demand for mortgage rates and for properties has slowed down.

The Bank of England kept the base rates at 5.25% in May and we are not expecting any further rate cuts until August at the earliest. Whilst it may seem counterintuitive, inflation is still at over 3%, and the Bank of England will not reduce any rates until inflation is below 1%.

However, market activity has stabilised to around pre-pandemic levels and agreed sales on properties are above pre-pandemic levels. Rental growth has also stabilised at 6.9%; the same since February this year.

Therefore, whilst the Bank of England will keep the base rates at 5.25% and not introduce any cuts until at least August, the market is slowly but surely moving along and getting better and better with each passing month.

Here is a Savills article detailing the current state of the housing market and why it is more than likely to stay the same for a little while before getting better:

"House prices fell by -0.4 % in April, slowing annual growth to 0.6%, according to Nationwide. Affordability pressures continue to weigh on buyer purchasing power. Prices have now fluctuated around the same level for the past 16 months and are only -0.4% below where they were in January 2023. Despite these short term indicators, our updated forecasts for house prices expect growth of 2.5% in 2024.

The market remains very sensitive to mortgage interest rates. Mortgage rates have been slowly ticking up since the short-lived lows of January and February, while staying well below their mid-2023 peak which has boosted buyer confidence. This is likely to increase once buyers have greater clarity over the first base rate cut. The Bank of England (BoE) kept the base rate at 5.25% in May as most economists projected.

This has tempered demand while supply has ticked up. The number of surveyors reporting higher demand fell according to the April RICS survey. The number reporting increased supply rose to the highest level since September 2020. This has widened the gap between supply and demand, putting downward pressure on prices.

The first base rate cut remains dependent on emerging economic data. Inflation fell to 3.2% in March, according to the ONS, higher than many economists forecasted. Wage growth has also remained high, although unemployment has ticked up. Positive GDP figures in the first quarter of 2024 mean that the UK has moved out of recession. These mixed signals make the timings of the first cut uncertain, with Oxford Economics expecting it to come at one of the next two MPC meetings. 

Market activity has become more stabilised at around pre-pandemic levels. Mortgage approvals increased again in March to their highest level in 18 months, according to the BoE, taking them to 95% of their 2017-19 average. This comes in the wake of the increase in agreed sales, which have consistently been just above pre-pandemic levels since the start of the year. 

The majority of local areas continue to see annual house price falls in the more lagged Land Registry data. Scotland was the only region with positive annual growth of 1.4% in January 2024. Sunderland joined Aberdeen, Hartlepool, and Middlesborough as the fourth LA where prices have fallen below their 07/08 peak, down -0.3% compared to April 2008.

Annual rental growth across the UK in March was 6.9% according to Zoopla, unchanged from February. Strong regional variation persists, with high annual growth in Scotland (9.6%), North East (9.3%), and East of England (8.7%). The East Midlands saw monthly falls of -0.1%, suggesting that renters there may be beginning to hit an affordability ceiling as has been the case in London."



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