UK housing market recovery could be slowed by revised rate expectations – Bloomberg

UK housing market recovery could be slowed by revised rate expectations – Bloomberg

Analysis of the UK housing market from Bloomberg Intelligence suggested that a later-than-expected reduction in the central bank rate had led to a reversal of some of the best buy mortgage rates seen at the start of 2024. 

This comes as data released by Moneyfacts today showed the average two-year fixed rate was edging closer to 6%. 

Despite this, housing market activity seems to be improving, with the number of mortgage approvals for house purchase rising to their highest level in nearly two years, according to figures from the Bank of England. 

Average house price movements have also been subtle, with only small month-on-month changes. 

Bloomberg Intelligence said it expected low single-digit house price growth this year. 

The firm said an easing in house price to earnings ratios could improve mortgage affordability and continue to support activity in the housing market. 


Fewer and later rate cuts 

The markets are now expecting fewer Bank of England base rate cuts over the next three years, with the rate falling to 4.5% by this time next year and 3.8% by mid-2027. 

This is a more modest prediction compared to the original expectation that the base rate would fall to 4.5% by the end of this year and 3% by the end of 2025 or mid-2026. 

Bloomberg Intelligence said cuts of 75 basis points (bps) over the next year, and a reduction of 125bps by mid-2016 could lead to a “sluggish recovery” for homebuilders. 


Adjusting to higher rates 

Bloomberg Intelligence said sentiment towards the UK’s housing market had turned more positive as buyers were reassured by its stability and became accustomed to higher interest rates once they settled. 

The firm said: “There could be a lot of pent-up demand waiting to be unleashed, given the steep drop in mortgage approvals and transactions in late 2022 and 2023.” 


Reignited London housing market 

Bloomberg Intelligence said following “house price underperformance” in London, improved affordability was reviving demand in the city. 

It said a return to the office was placing more importance on shorter commutes.