UK property market bounces back on track as interest rate cuts | Housing Market

The UK property market has taken an immediate hit after the Bank of England cut interest rates for the first time in four years. Cheaper mortgage rates are encouraging buyers and pushing up house prices.

Figures from property website Rightmove show that the number of potential buyers contacting estate agents about a property since August 1 has jumped by 19% compared to the same period a year ago. Contacts in July were up 11% on the previous year.

The Bank of Korea cut interest rates on Aug. 1 for the first time since the start of the COVID-19 pandemic to ease the burden on households after raising borrowing costs to their highest levels since the 2008 financial crisis to combat soaring inflation.

After inflation fell to normal levels this year, it cut its benchmark interest rate to 5% from 5.25%. Last week’s figures showed inflation rose to 2.2% in July, above the bank’s 2% target. But it is still well below the 11.1% peak two years ago, when energy prices soared as Russia invaded Ukraine.

Rightmove said cuts in bank lending costs had helped major lenders offer cheaper mortgages more quickly, contributing significantly to increased buyer demand.

The report said future rate cuts would establish a robust property market in the autumn, and revised its forecast for house prices up to 1% for 2024 from a 1% decline.

Financial markets widely expect the bank to respond by cutting rates further as inflation pressures ease, possibly to 3.5% by the end of next year. The bank is expected to keep rates on hold at its next meeting in September before resuming its cuts in borrowing costs in November.

U.S. Federal Reserve President Andrew Bailey is scheduled to speak at the annual meeting of U.S. central bank policymakers in the Rocky Mountain resort of Jackson Hole on Friday.

Rightmove said the average new seller asking price fell by 1.5%, or 5,708, to 367,785 this month. Prices typically fall in July and August, when the property market is quiet. The decline was in line with the long-term average over the past 18 years.

As the summer holiday season draws to a close, conditions are set for a more active autumn market, says Tim Bannister, Rightmoves’ head of property science. The response from home movers to what is expected to be only the first of several rate cuts over the next year or two, combined with other positive data and trends, has led us to revise our price forecasts upwards this year.

The figures come as high street lenders are cutting their borrowing costs on new mortgages in anticipation of a rate cut by the central bank. Rightmove said the average five-year fixed rate mortgage is now 4.80% higher than it was three years ago, before the first of 14 consecutive Bank rate increases, but is significantly lower at 5.82% in 2023.

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The latest figures are the lowest since Leeds Trust's small budget in September 2022.

Estate agents said that, along with interest rate cuts from banks, political uncertainty following Labour's landslide election victory in July and a brighter economic outlook have also helped boost buyer interest.

Josephine Ashby, managing partner at John Bray Estate Agents in Cornwall, said: “There was no doubt a slowdown in activity in the run-up to the general election, despite the result not being a huge surprise nationally. Now that the election is over and there is greater certainty around the political and economic situation, we are seeing an improvement in buyer engagement.”

But borrowing costs are still higher than they were three years ago, and home purchases remain out of reach for millions of households.

Tom Beale, head of UK housing research at Knight Frank, said: The market is expecting further cuts in 2024, meaning that transaction volumes will be stronger this autumn than last year. Nevertheless, uncertainty around the Budget and a wave of people taking up lucrative mortgage deals will keep a lid on price growth, which he expects to be 3% in the UK this year.

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