Month: August 2024

Britain’s housing market is set for a busy autumn after the Bank of England cut interest rates this month for the first time since Covid-19 struck, with the number of homes listed for sale hitting a seven-year high.

The stock of homes for sale in the UK was 14 per cent higher over the past month compared with the same time in 2023, according to analysis published by property website Zoopla on Wednesday.

More buyers and sellers have been coming back to the market after almost two years of muted activity caused by higher borrowing costs, as the BoE raised its benchmark rate to a 16-year high of 5.25 per cent in a bid to tame inflation.

As interest rates fall — financial markets are pricing in about two more quarter-point cuts by the BoE this year — Zoopla expects the number of home sales to end 2024 roughly 10 per cent higher than 2023. But it warned that the surge of supply meant sellers should not expect high prices.

“With this level of supply, people have got to keep their feet on the ground on price,” said Richard Donnell, executive director at Zoopla. “Especially in the wider south of England, there is affordability pressure that means buyers will use that choice to keep negotiating price.”

The number of sellers cutting their asking prices by 5 per cent or more was at an elevated level of about 20 per cent, and these properties took more than 2.5 times longer to sell than properties that had not been discounted, Zoopla added.

House prices rose 2.7 per cent in the year to June, unchanged from May, according to official figures, leaving the average property at £288,000. The average five-year fixed rate mortgage with a 25 per cent deposit has fallen to 4.55 per cent from 5.55 per cent a year ago, with the cheapest rates now just below 4 per cent, according to Rightmove’s mortgage tracker. However, analysts do not expect a sharp fall in mortgage rates, meaning buyers’ budgets will remain squeezed.

A typical mortgage now costs 39 per cent of the median full-time salary, up from 30 per cent before the Covid-19 pandemic, according to Capital Economics.

Source: Financial Times

The first Bank of England rate cut in four years has triggered an immediate upturn in the UK property market, as cheaper mortgages prompt interest among buyers and drive up house prices.

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

The Bank cut interest rates on 1 August for the first time since the start of the Covid pandemic, easing pressure on households after it had raised borrowing costs to the highest level since the 2008 financial crisis to tackle soaring inflation.

It cut its key base rate from 5.25% to 5%, after a fall in inflation back to more normal levels this year. Figures last week showed inflation rose to 2.2% in July, above the Bank’s 2% target. However, it remains significantly lower than a peak of 11.1% two years ago after the Russian invasion of Ukraine triggered a surge in energy prices.

Rightmove said the Bank cutting borrow costs had helped to accelerate the availability of cheaper mortgages from high street lenders, alongside contributing “significantly” to improved buyer demand.

It said future Bank rate cuts would establish a buoyant autumn property market, and it upgraded its house price forecasts from a 1% drop over the whole of 2024 to a 1% rise in new seller asking prices.

Financial markets widely expect that the Bank will react to fading inflationary pressures by cutting rates further, possibly to as low as 3.5% by the end of next year. The Bank is expected to keep rates on hold at its next meeting in September before restarting reductions in borrowing costs in November.

Source: The Guardian

The recent rise in the UK inflation rate to 2.2% could impact the timing and likelihood of interest rate cuts, but it may not entirely stop them from happening. Here’s why:

Inflation Remains Close to Target: While inflation ticked up slightly, it remains relatively close to the Bank of England’s 2% target. The Bank had anticipated a peak of around 2.75%, meaning the current rise isn’t seen as drastically high or unmanageable. As long as inflation remains within a range the Bank views as acceptable, it may still consider rate cuts if other economic conditions, like slower growth or easing wage pressures, support such a move.

Core Inflation and Services Sector: Core inflation, which excludes volatile components like food and energy, has actually decreased to 3.3% from 3.5%, and inflation in the services sector has also eased. These are important metrics for the Bank of England as they signal underlying inflationary pressures are cooling. If this trend continues, it could give the Bank more room to lower rates.

Market Expectations: Despite the slight rise in headline inflation, market participants are still pricing in a reasonable probability of rate cuts. Before the inflation data, markets estimated a 36% chance of a rate cut in September, which rose to 45% after the data was released. This shows that investors are still betting on a cut, albeit with some caution. Additionally, markets are expecting two rate cuts by the end of the year.

Broader Economic Considerations: Beyond inflation, the Bank of England also considers other factors such as economic growth, unemployment, and wage growth. If the broader economy shows signs of slowing or consumer demand weakens, the Bank might prioritize supporting the economy through lower interest rates, even if inflation remains slightly above target.

Inflation Outlook: The Bank of England has indicated that it expects inflation to peak soon and then start falling. If this outlook holds, the central bank may feel more confident in cutting rates later in the year, assuming inflation starts to ease after its expected peak.

In summary, the recent inflation rise could delay or temper the size of interest rate cuts, but it is unlikely to completely halt them, especially if inflation moderates and other economic indicators suggest a need for easing monetary policy.

Source: Property Notify

Lower mortgage costs and more interest rate cuts could fuel a rise in house prices for the rest of this year, Halifax has said.

The mortgage lender’s prediction came after property prices ticked up in July following a flat few months. Halifax said recent mortgage rate drops were “encouraging” for first-time buyers, those moving along the housing ladder or those refinancing. But it warned affordability challenges and lack of available properties still posed problems for buyers. “Against the backdrop of lower mortgage rates and potential further [Bank of England] base rate reductions, we anticipate house prices to continue a modest upward trend throughout the remainder of this year,” Amanda Bryden, head of mortgages at Halifax said.

Source: BBC News