Luxury properties in the Kensington and Chelsea area of London, UK, on Monday, August 21, 2023.
Jason Alden | Bloomberg | Getty Images
The UK property market has been a rollercoaster for renters and potential homeowners alike for over a year.
Rents soared in 2022 and 2023 as the imbalance between supply and demand led to intense competition for rental properties.
Meanwhile, mortgage rates in Britain hit a 15-year high earlier this year, driven up by higher interest rates and the UK government’s shock policy at the end of 2022. The average interest rate for a two-year mortgage rose to 6 in 2022. 86%. July and was around 6% at the time of writing, according to figures from data provider Moneyfacts.
At first glance, neither renting nor buying a property in Britain seems particularly attractive at the moment. But according to Tom Bill, head of UK housing research at property company Knight Frank, the coming months could be a good time to enter the market.
“If you look at what the Bank of England is doing, this may be the best time,” he told CNBC’s Silvia Amaro.
This is because the Bank of England is likely to have finished raising interest rates – which determine mortgage rates for millions of homeowners in Britain. And while speculation has now shifted to when rates will be cut, Bill says it is unlikely that mortgage rates will fall sharply: “We are talking about small moves down.”
The Bank of England, like many central banks around the world, has raised interest rates in an attempt to cool the economy. Recent data, including inflation figures, have suggested that higher interest rates are having the desired effect of lowering prices – raising expectations that the central bank could start cutting interest rates in 2024.
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Mortgage lenders are also keen to gain and maintain market share in what Bill says has been a “lean” year for the sector, adding to downward pressure on mortgages.
Higher mortgage rates tend to lead to a fall in house prices, and it’s a trend that is also reflected in Britain, even as prices remain above pre-pandemic levels, said Richard Donnell, executive director of research at property data company Zoopla .
“Prices have fallen modestly by less than 5%, while house prices are still £40,000 higher than before the pandemic started in early 2020,” he told CNBC.
However, transactions are down 23% this year, Donnell noted, and while this isn’t good news for the real estate market, it could be good for some buyers.
“The average agreed sale is £18,000 less than asking price, the highest discount in more than five years. This means it’s a great time to get into the market and negotiate harder on price, with 40% more homes for sale than a year ago,” he said.
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The next six months
Knight Frank’s bill suggests the next six months could be a good time to get on the property ladder.
“Sentiment has improved significantly in recent weeks, so I would say if you’re trying to time your purchase, and a lot of times people are trying to get their timing right, it feels like the next six months are going to be better than the last few weeks.” last six months,” he said.
Prices may also continue to fall, as Donnell notes. “Housing prices are expected to fall by a further 2% in 2024 as prices adjust to weaker purchasing power, even as mortgage rates fall further,” he said.
However, there is one potential headwind for the sales market: the general election expected to take place in Britain next fall. Bill points out that real estate markets often slow in the run-up to elections, especially when a change in leadership is expected – as is now the case. currently the case in Great Britain.
Rental prospects
In the meantime, the rental market is expected to remain tight and rental prices will continue to rise. The strength of the labor market, high levels of immigration and high mortgage rates that “trap potential buyers” in the rental sector all play a role in this, Donnell said.
“The supply-demand imbalance will persist until 2024, but demand will weaken as affordability pressures increase,” he said. However, rents are still expected to rise 4-5% next year, he said.
Bill noted that supply is starting to pick up in some parts of the country, but demand still largely exceeds this. “It’s normalizing, but it’s not completely normalized yet.”