‘Thunderclouds have gathered’: Further interest rate hikes will dampen housing market growth spurts, according to influential real estate survey
- ‘Renewed downward pressure’ on housing market expected due to interest rate rise
- BoE policymakers have raised interest rates at each of the last 12 meetings
- Will the interest rate increase affect you? Email jane.denton@mailonline.co.uk
New interest rate hikes are likely to ‘dampen’ positive trends in the UK housing market, according to a new closely monitored study.
Rising interest rates, which are expected to rise further to around 5.5 percent by the end of the year, are driving up rates on new fixed-term mortgages and creating hesitation in the market.
Expectations of further interest rate hikes could put renewed downward pressure on the market in the coming months.
Under pressure: The BoE’s Andrew Bailey has raised interest rates in the last 12 meetings
The Bank of England’s monetary policy committee has raised interest rates at each of its last 12 meetings, from 0.1 percent to 4.5 percent.
Those looking for a two-year, fixed-rate mortgage but have only saved a 5 percent down payment will have to pay an average mortgage rate of 6.01 percent. Many are rushing to secure deals before rates rise again.
Figures compiled by real estate website Rightmove showed that home loan rates rose by an average of 0.39 percent over the past week.
In his latest survey, Rics said new inquiries from homebuyers and agreed sales metrics were the “least negative” in a year last month.
New instructions were also on the rise, with the indicator moving into positive territory for the first time since early 2022.
But Tarrant Parsons, senior economist at Rics, said higher interest rates could quickly reverse these positive effects.
He said: “The latest feedback from the RICS UK Residential Survey points to a modest recovery in sales market activity in May, with generally less negativity compared to the end of 2022.
However, it appears that storm clouds have gathered, with stubbornly high inflation in the UK likely to undermine the recent improvement in activity by prompting the Bank of England to take further action through rate hikes, leading to higher mortgage rates and ultimately a reduction in affordability and buyer demand. .
“The banking sector seems to expect this, as many banks and building societies are already introducing products with higher interest rates.”
Prices: Property prices are falling, but the rate of decline has slowed, Rics said
Variations: Scotland and Northern Ireland have seen property prices rise in recent weeks
Forecasts: A chart from Rics with forecasts of UK property prices for the next 12 months
National house prices continued to fall last month, “although the downward pressure is easing,” Rics said.
It added: ‘Within this, the disaggregated data now shows some notable variations in house price trends in different parts of the UK. In London, for example, the latest net balance of -3 percent indicates a mostly stable picture (compared to the values of -42 percent and -11 percent in March and April).
‘In addition, respondents in Scotland and Northern Ireland saw an increase in house prices. By contrast, prices continue to fall in most regions of England, with net balances in the East Midlands (-68%) and the South East (-48%) deepest in negative territory.
It added: “Looking ahead, the range of national house price expectations (for the next 12 months) is now in broadly neutral territory, with a net balance of only -3 percent.”
Rics said the agreed sales indicator for May produced a net balance of -7 percent, noticeably less dismal than the -29 percent and -18 percent numbers in March and April respectively.