House prices significantly outperformed analyst expectations after the Bank of England cut its base interest rate, data from a closely watched survey from the Royal Institute of Chartered Surveyors (RICS) showed.
The survey found that the UK house price balance, which measures the difference between the percentage of survey respondents reporting rising house prices and those seeing declines, turned positive for the first time since October 2022, with a reading of plus one per cent in August.
This marked a significant improvement from the negative 18 per cent in July and exceeded analysts’ expectations, which had forecast a slight improvement to negative 14 per cent.
Tomer Aboody, director of specialist lender MT Finance, said: “Market sentiment has noticeably improved as mortgage rates have started coming down, following the reduction in the base rate.
“We are seeing a higher level of transactions as more properties come onto the market and there is an increase in buyers prepared to take the plunge thanks to lower mortgage rates. Although this uplift is positive, admittedly we are starting from a low base line since the housing market has been pretty stagnant over the past couple of years.”
RBC Capital Markets analyst Anthony Codling said that the one per cent reduction in mortgage rates has the same impact on affordability as a 10 per cent fall in house prices.
“As mortgage rates have started to fall the activity in the UK housing market has started to rise,” Codling said.
The majority of respondents to the RICS survey predicted a steady rise in house prices over the next three months.
“The latest RICS survey captures an improvement in sentiment over the past month in the wake of the modest decline in mortgage rates with buyer interest improving, albeit from a relatively low base, and stock levels edging up,” says Simon Rubinsohn, RICS chief economist.
Rental market hits an ‘affordability ceiling’
While the property sales market paints a healthy picture, the rental market poses a headache.
RICS found that the struggle between supply and demand for rental properties has continued, which will likely push rents even higher.
Tenant demand remained high, but the supply of rental properties was sluggish, with new landlords’ instructions falling once again. The net balance for new rental listings dropped to -21, down from -9 last month.
Rubinsohn said affordability remained an issue: “With landlords looking to scale back their portfolios [this] will inevitably increase the imbalance that already exists in the market”.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “As far as lettings are concerned, we’ve noticed a steady uptick in rents but certainly not as substantial as we saw last year and in the early part of 2024.
“Rents may have hit an affordability ceiling for many but are unlikely to fall significantly while underpinned by continuing lack of stock – especially of one- and two-bedroom flats.”
Upcoming policy changes
The Autumn budget and the Renters Reform Bill, which entered Parliament this week, will both affect the housing market.
The Renters Reform Bill is set to remove Section 21 ‘no fault evictions’, which has pushed more landlords to sell “mainly due to concerns about regaining possession of properties from disruptive tenants,” Leaf said.
However, as the change has been such a long time coming, the effect on the market should be “relatively limited”, Leaf said.
Rubinson added that the Autumn budget, too, is “keeping the mood in check”.
“You get the feeling a lot of people want to purchase a home and get locked into a rate now before any potential reverse in mortgage pricing due to the Autumn Budget,” Emma Jones, Managing Director at Whenthebanksaysno.co.uk said.