JULY 2024

Property Market Update

Over the past six months, the UK property market has experienced significant fluctuations influenced by a variety of factors. Interest rates have continued to play a pivotal role in shaping market dynamics. The Bank of England has implemented interest rate hikes in response to persistent inflation. These higher borrowing costs have cooled the fervor seen in the market over the previous year, leading to a slowdown in home sales and a decline in the rate of price appreciation. Prospective buyers are facing increased mortgage rates, which has dampened their purchasing power and, consequently, their enthusiasm to enter the market.

Additionally, the inventory of available homes has seen modest improvements in some regions, alleviating the acute shortages that characterised the pandemic era. This slight increase in supply is partly due to homeowners being more willing to sell as the economic outlook becomes clearer and more predictable. However, this trend is not uniform across all markets, with some areas still experiencing tight inventory levels that continue to pressure prices. The variation in market conditions across different locales underscores the ongoing complexity and regional disparities in the UK property market.

Economic uncertainty and geopolitical events have also played a role in shaping the property market. The war in Ukraine, energy price volatility, and ongoing supply chain disruptions have all contributed to a cautious sentiment among both buyers and sellers. Investors, who had previously viewed real estate as a safe haven, are now more circumspect, balancing their portfolios to mitigate risk. This shift is leading to a more balanced market, with speculative buying on the decline and more transactions driven by genuine housing needs rather than investment motivations.

Overall, the past six months have seen the UK property market transitioning from the frenetic pace of the pandemic boom to a more measured and stable phase. While challenges remain, particularly with affordability and economic uncertainty, there are signs that the market is finding a new equilibrium. Policymakers and industry stakeholders are closely monitoring these developments to ensure that the market remains resilient and accessible to a broad spectrum of buyers and sellers.

Financial Markets 

The financial situation in the UK over the past few months has been marked by a period of relative stability in monetary policy. The Bank of England has held its interest rates steady for several months now, after a series of hikes aimed at curbing inflation. This decision to pause further rate increases reflects a cautious approach to balancing inflation control with the need to support economic growth and financial stability. The maintained base interest rate has provided some predictability in the broader economy, particularly in the housing market.

Mortgage rates, which had previously seen substantial increases due to the earlier rate hikes, have shown signs of stabilisation. Lenders have adjusted their mortgage products to reflect the unchanged base rate, leading to a plateau in both fixed and variable mortgage rates. For prospective homebuyers and those looking to remortgage, this stabilisation offers some relief from the sharp increases experienced over the past year. However, affordability remains a challenge due to the elevated level of mortgage costs compared to a few years ago, which has dampened buyer enthusiasm and contributed to a slowdown in housing demand.

In a recent development, some lenders have begun to reduce their lending rates. This move appears to be a strategic response to the cooling housing market and the need to remain competitive. By lowering rates, these lenders aim to attract more borrowers and stimulate market activity. This reduction in lending rates provides a glimmer of relief for prospective buyers and those looking to remortgage, potentially easing the burden of higher monthly payments and improving affordability.

This period of stabilised mortgage rates, combined with recent reductions by some lenders, has significant implications for existing homeowners as well. Those on variable rate mortgages have seen their monthly payments stabilise, offering some respite amid a broader cost-of-living crisis. Even those with fixed-rate mortgages, who face the prospect of higher rates upon renewal, may find the recent reductions beneficial, potentially securing slightly better terms than previously anticipated.

In response to these challenges and opportunities, policymakers and financial institutions are closely monitoring the housing market and broader economic conditions. There is ongoing debate about the optimal pace of future interest rate adjustments to ensure a balance between controlling inflation and supporting economic growth. The government has also been exploring measures to support households facing financial difficulties, although the effectiveness and scope of these measures remain under scrutiny.

Overall, the UK’s financial landscape is characterized by cautious optimism tempered with significant challenges. The trajectory of inflation and subsequent monetary policy responses will continue to be key determinants of the economic outlook, with mortgage rates playing a crucial role in shaping consumer confidence and spending. As the situation evolves, stakeholders are keenly aware of the need to maintain a delicate balance to ensure both economic stability and the well-being of households across the country.

Election 

The main political parties in the UK have outlined various policies for the housing market ahead of the upcoming election, each aiming to address issues such as affordability, supply, and homeownership.

Conservative Party

The Conservative Party has emphasised the importance of increasing homeownership. They propose to continue with their Help to Buy scheme and potentially extend it, making it easier for first-time buyers to get onto the property ladder. Additionally, they plan to simplify the planning system to accelerate the construction of new homes and encourage the development of brownfield sites. They also aim to introduce policies to protect greenbelt land while ensuring sufficient new homes are built.

Labour Party

The Labour Party has proposed a comprehensive approach to tackle the housing crisis, focusing on affordability and social housing. They plan to build a significant number of new council homes and affordable homes for rent and ownership. Labour also intends to introduce a rent control policy to cap rent increases and provide greater security for tenants. Additionally, they propose to reform the leasehold system and ensure new houses meet high environmental and energy efficiency standards.

Liberal Democrats

The Liberal Democrats have prioritised both increasing the housing supply and making housing more affordable. They propose building hundreds of thousands of new homes, with a significant proportion designated as social housing. The party also plans to introduce a Rent to Own scheme, allowing tenants to build up equity in their rented homes. Moreover, they emphasise the need to address homelessness through targeted support and investment in affordable housing.

Green Party

The Green Party focuses on sustainable development and affordable housing. They propose to build thousands of zero-carbon homes to address both housing shortages and environmental concerns. Their policies include rent controls, enhanced rights for tenants, and significant investment in social housing. They also advocate for retrofitting existing homes to improve energy efficiency and reduce carbon emissions.

These proposed policies highlight the varying approaches of the main parties to addressing the housing market issues, with each party offering distinct solutions based on their broader economic and social priorities.

So what does this all mean?

The upcoming UK election is anticipated to bring potential changes to both the finance and property markets, depending on the policies and priorities of the elected government. Should the new administration focus on economic stability and affordable housing, we might see initiatives aimed at easing mortgage rates, increasing housing supply, and providing financial support to first-time buyers. Additionally, tax reforms and regulatory adjustments could impact investor confidence and market dynamics. The election outcome will likely influence consumer sentiment, borrowing costs, and property prices, as stakeholders in the finance and property sectors adapt to new government policies and economic strategies.