The UK property market has experienced a turbulent year, with soaring rents and a spike in mortgage rates, leaving both renters and prospective homeowners facing challenging decisions. Throughout 2022 and 2023, imbalances in supply and demand led to fierce competition for rental properties, driving up rents.
Earlier this year, mortgage rates in Britain reached a 15-year high, fueled by higher interest rates and the UK government’s policy moves in late 2022. The average rate for a 2-year fixed mortgage surged to 6.86% in July, standing at around 6% at present, according to data from Moneyfacts.
Tom Bill, Head of UK Residential Research at Knight Frank, suggests that despite the current challenges, the coming months could present an opportune time to enter the property market. He points out that the Bank of England is likely done hiking interest rates, and while speculation surrounds potential rate cuts, Bill anticipates only small movements downwards in mortgage rates.
Mortgage lenders, keen on gaining and maintaining market share in what has been a challenging year for the industry, are adding downward pressure to mortgages. Although higher mortgage rates typically lead to a decline in house prices, Richard Donnell, Executive Director for Research at Zoopla, notes that while prices have fallen modestly, they remain above pre-pandemic levels.
Transactions in the property market have fallen by 23% this year, creating opportunities for buyers. The average sale agreed is £18,000 less than the asking price, marking the highest discount in over five years. Donnell sees this as a favorable time for buyers to negotiate harder on prices, especially with 40% more homes for sale than a year ago.
Looking ahead, Bill suggests that the next six months could be a favorable period to enter the property market. Sentiment has improved in recent weeks, and Bill anticipates that the next half-year may offer better conditions than the previous one. However, he cautions that the general election expected next autumn in the UK could introduce a headwind, as property markets often slow in the lead-up to elections, especially when a leadership change is expected.
In the rental market, high demand, strength in the labor market, and immigration contribute to a tight market with rising rents. While supply is beginning to pick up in some areas, demand still outweighs it. Despite the normalization of supply in certain regions, the overall market hasn’t fully normalized yet, according to Bill.