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UK house prices and transactions to remain weak if rates stay above five per cent – Bloomberg Intelligence

  • 08/08/2023
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UK house prices and transactions to remain weak if rates stay above five per cent – Bloomberg Intelligence
If mortgage rates remain above five per cent then house price growth and transaction levels will continue to soften, a research analyst firm has predicted.

In its UK Housing Pulse report for July, Bloomberg Intelligence (BI) said the higher average mortgage rates had threatened the sales and profit of housebuilders Persimmon, Barratt, Taylor Wimpey, Bellway and Berkeley. 

In the most recent trading updates and results, Taylor Wimpey said increased mortgage rates had impacted the affordability of its customers, while Bellway said first-time buyers were affected by more costly high loan to value (LTV) options. 

BI said although the market rebounded following the mini Budget, the sharp increase in mortgage rates had affected sentiment towards UK housing. 

BI added: “Though surging rates may add urgency for buyers who have already secured a more attractive mortgage offer, other house hunters may delay purchases until rates fall and housing market headwinds ease. Such a rapid jump in rates may have particularly hit homebuyers heavily reliant on debt.” 


Market relief on the way

However, Bloomberg Intelligence said the “modest decline” in mortgage rates which had been seen in recent weeks could “offer some respite” to the market.  

The firm suggested that the market’s prediction for the base rate peak had lowered from around 6.4 per cent in June to 5.7 per cent more recently, which could go some way to lessening the impact of high interest rates on the housing market. 

The firm said if inflation continued to ease more notably, then these expectations could go even lower and provide more confidence. 

Iwona Hovenko, real estate analyst at Bloomberg Intelligence, said: “Tentative signs of easing cost pressures, with inflation slowing more than anticipated and the labour market also softening – as unemployment unexpectedly increased in June – could support some pull-back in rate views, in turn driving mortgage rates lower.  

“This may, however, require several months of consistently slowing inflation and wage pressure. Despite recent news of mortgage rate cuts by lenders, financing costs remain high and still pose a significant risk to housing activity and prices.” 

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