Housing Market Poised for Recovery as Mortgage Costs Ease
According to data released on Thursday by the Royal Institution of Chartered Surveyors (Rics), the housing market in the United Kingdom may be nearing a recovery after a difficult period characterized by rising mortgage costs. Estate agents anticipate a rebound in home sales in the coming year after a notable decline in demand observed in 2023.
Rics' annual sales expectations experienced a significant uptick of 10% between November and December, reaching 34%. Meanwhile, the measure of new buyer inquiries showed a marked improvement, with December's figure at -3%, a notable increase from November's -13%.
Although newly-agreed sales and new buyer inquiries are still declining, the rate of decline has slowed. The indicator for agreed home sales rose to -6% last month, marking the highest level since March 2022. Senior economist Tarrant Parsons from Rics commented on the positive shift: "Supported by an easing in mortgage interest rates of late, buyer demand has now stabilised, and this is expected to translate into a slight recovery in residential sales volumes over the coming months."
The report also highlighted a reduction in the time it takes to complete the sale of a home, with the average now standing at 18 weeks, down from 20 weeks in September 2023. In contrast, housing figures released by the UK's Office for National Statistics (ONS) for November indicated the sharpest decline in house prices in over a decade—the average cost of a home contracted by 2.1% in the year to November 2023. However, the Rics report suggests a potential turning point in market dynamics.
The housing market's challenges in 2023 were primarily attributed to a series of interest rate hikes, resulting in increased borrowing costs and dampened buyer demand. Nevertheless, the recent decision by several lenders to cut their fixed-rate mortgage deals in January has begun to shift the mortgage landscape. Data from real estate company Rightmove revealed a decrease in average mortgage rates for five-year and two-year fixed rates. The current average mortgage rate for a five-year fixed-rate mortgage is 4.79%, down from 4.94%, while two-year fixed rates have decreased from 5.28% to 5.10%.
Analysts are cautiously optimistic about the housing market's prospects, anticipating further improvement as the base interest rate stabilises, boosting buyer confidence. However, challenges still need to be addressed, as some homeowners face the expiration of fixed-rate deals agreed upon before the series of interest rate hikes.
Additionally, the unexpected inflation figure of 4% for December may complicate the timeline for potential interest rate cuts, impacting market confidence and potentially keeping mortgage rates higher for longer. The evolving economic landscape will be closely monitored as the housing market navigates its path to recovery.