- The UK property market has recently proven difficult for both renters and potential homeowners – but experts believe this could soon change.
- Knight Frank's Tom Bill says the next six months could be a good time to get on the property ladder.
- However, the rental market is expected to remain tight and rents will continue to rise.
Luxury properties in the London district of Kensington and Chelsea, UK, on Monday 21st August 2023.
Jason Alden | Bloomberg | Getty Images
The UK property market has been a roller coaster ride for renters and potential homeowners for over a year.
Rents skyrocketed in 2022 and 2023 as the imbalance between supply and demand led to fierce competition for rental properties.
Meanwhile, mortgage rates in the UK hit a 15-year high earlier this year, pushed up by higher interest rates and the UK government's shocking policy moves at the end of 2022. The average interest rate on a two-year fixed-rate mortgage rose to as much as 6.86% in July 2022 and was around 6% at the time of writing, according to data provider Moneyfacts.
At first glance, neither renting nor buying a property in Great Britain seems particularly attractive at the moment. However, according to Tom Bill, head of UK residential research at property firm 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, now is probably the best time,” he told CNBC's Silvia Amaro.
This is because the Bank of England is likely to be done raising interest rates – which determine mortgage rates for millions of homeowners in the UK. And although speculation has now shifted to when rates will be cut, Bill says mortgage rates probably won't fall much: “We're talking small moves down here.”
The Bank of England, like many central banks around the world, has raised interest rates to cool the economy. Recent data, including inflation figures, suggest that increased interest rates are having the desired effect of lowering prices – raising expectations that the central bank could start cutting interest rates in 2024.
Mortgage lenders are also looking to gain and maintain market share, although the industry has experienced a “weak” year, according to Bill, adding to downward pressure on mortgages.
Higher mortgage rates typically lead to a fall in house prices and this trend is reflected in the UK, although prices remain above pre-pandemic levels, according to Richard Donnell, executive director of research at property data company Zoopla.
“Prices have fallen marginally by less than 5%, with house prices still £40,000 higher than before the pandemic began in early 2020,” he told CNBC.
However, transactions are down 23% this year, Donnell noted, and while that's not good news for the real estate market, it could be good for some buyers.
“The average sale agreed is £18,000 below the asking price, the highest discount in over 5 years. “This means it's a good time to enter the market to negotiate harder on price, with 40% more homes for sale than a year ago,” he said.
Knight Frank's bill suggests the next six months could be a good time to get on the property ladder.
“The mood has improved significantly in the last few weeks. So I would say if you try to time your purchase, and a lot of times people try to time it right, you feel like the next six months are going to be better than the last six months,” he said.
Prices could also fall further, as Donnell emphasizes. “House prices are expected to fall a further 2% over the course of 2024 as prices adjust to weaker purchasing power, even as mortgage rates continue to fall,” he said.
However, there is a potential headwind for the sales market: the general election expected to take place in the UK next autumn suggests that property markets often slow in the run-up to elections, particularly where a change in leadership is expected – like him This is currently the case in the UK.
Meanwhile, the rental market is expected to remain tight and rents will continue to rise. According to Donnell, the strength of the labor market, high levels of immigration and high mortgage rates that “trap potential buyers” all play a role.
“The imbalance between supply and demand will persist until 2024, but demand will weaken as pressure on affordability increases,” he said. Still, rents are expected to rise 4-5% next year, he said.
Bill noted that supply is starting to increase in some parts of the country, but for the most part it still outweighs demand. “It’s normalizing, but it’s not fully normalized yet.”