The outlook for the UK housing market is improving, according to the latest comments from Knight Frank, as positive inflation news boosts optimism in the sector.
Over recent months, the UK housing market has continued to adjust to the economic climate, with higher mortgage rates, sticky inflation and overseas conflicts all having a knock-on effect on overall sentiment. While the sector has remained characteristically resilient, transaction levels have been impacted.
However, the latest outlook published by Knight Frank reveals that a number of factors in recent days and weeks could begin to push the market in a more positive direction, potentially leading to a boost in the early months of 2024 as the sector regains its momentum.
There is still some uncertainty about the future, of course, with property investors and landlords in particular paying especially close attention to any upcoming regulatory changes in the UK housing market, in the form of the Renters Reform Bill.
Mortgage rates are coming down
Mortgage rates have been falling over the past couple of months, having roughly tripled since 2020/2021. This is likely to have a huge impact on affordability, and make a real difference to anyone buying a new property with a mortgage or remortgaging at the moment.
As the latest moves by lenders demonstrate, mortgage rates are not necessarily directly linked to the Bank of England base rate. This has been held at 5.25% since August, and while the Bank may intend to keep it there for another few months, lenders will be using a variety of markers to set their rates.
For example, as Knight Frank points out, the five-year swap rate is lower than the bank rate at the moment, which shows that the general consensus among the financial markets is that borrowing costs will continue to fall.
While mortgage rates at one point were averaging around 6% across the market as a whole, they are now down to closer to 5%, which will make a big difference to borrowers and to market confidence.
Simon Gammon, head of Knight Frank Finance, said: “The recent rate drops show lenders are feeling more positive about the outlook and there is an impact beyond the cut. Lower rates mean lenders have more opportunities to help borrowers which itself will lead to a more liquid and competitive lending market.”
As the report notes, falling mortgage rates are one of the big drivers behind a potential “seasonal bounce next spring”, meaning that as things stand, this looks like a likely outcome for the UK housing market.
High-flying locations in the UK housing market
Recent house price indices have revealed a general stagnation or even dip in house prices across the country, in response to affordability restraints and lower confidence levels. However, delving deeper into the figures, a number of locations across the UK housing market have bucked the trend.
For example, while the the latest index from Halifax showed an overall year-on-year house price fall of -3.2%, it also revealed that particular pockets of the country were performing significantly better than average; highlighting the fact that property investors and homebuyers should consider the individual housing markets of the country.
The research found that Powys in Wales has seen a huge 17.4% surge in house prices over the past year, making it the strongest-performing location in the UK. The second strongest area for house price gains was East Lindsey in the East Midlands with a 13.3% uplift, followed by Moray in Scotland (10.7%).
Specific locations within the north west, the north east, eastern England and London were all also highlighted in the top 10, proving that more general trends can be off the mark compared with when you look more specifically at individual areas.