Stalled Interest Rates Good News for UK Housing Market

Interest rates stayed the same for the second consecutive month in November.

Typically, this is a sign that the housing market could turn a corner and see an increase in demand.

Let’s take a look at this data in further detail and see how it affects the UK housing market outlook in 2023 and beyond.

The Bank of England Monetary Policy Committee met on 2nd November and voted to keep the base rate at 5.25%, citing “tighter monetary policy on the labour market and momentum in the real economy more generally”.

This optimism could indicate that buyers will return to the housing market in the near future.

The MPC has been raising interest rates since December 2021. During that time, inflation peaked at 11.1% following the Russian invasion of Ukraine. The Bank of England has a target of 2% for inflation. Currently, the inflation rate is 6.7%.

For an expansive overview of inflation over the years, learn more with our UK interest rates comparison.

Why Did the Bank of England Raise Interest Rates?

The Bank of England raised interest rates to combat rising inflation.

Inflation rose due to the COVID-19 pandemic and a shortage of products, followed by a massive demand for said products, pushing up prices. The Ukraine invasion then followed this, the implications of which included soaring food and energy prices.

When interest rates rise, mortgage rates typically follow suit.

Inflation has already made goods more expensive – this cost-of-living crisis already means people have less money to spend on things. With interest rates rising, people become less inclined to borrow, as they need to pay back more to satisfy the loan.

These higher interest rates force more buyers out of the market and into the private rented sector. With fewer people buying property, price growth has stalled, and prices have fallen.

This is good news for buy-to-let investors, who have seen a huge rise in rents and gross yields due to increased tenant demand.

Our housing market forecasts outline current UK property prices and rental yields, presenting the latest analysis and future projections. Learn more with our 2023 Liverpool Property Price Forecast.

Many UK housing market experts agree that an interest rate hold is a step in the right direction.

Alex Lyle from Antony Roberts estate agency said:

“This Autumn, we’ve found that buyers relying on mortgages to fund their purchase have been waiting to see what happens with pricing, as this has such an impact on affordability.

“Another interest rate hold will be viewed as a further little pigeon step in the right direction, giving hope that longer-term stability on rates is on the way. This should fuel confidence in those who have been anxious about committing to a property purchase.”

Mark Mannings, managing director at Northern Estate Agencies Group, echoed this sentiment. He said:

“The news that the Bank of England has decided to hold rates again will be a welcome relief for homeowners and potential buyers who have been squeezed by 18 months of sustained rises.

“As we push into 2024, I think inflation will continue to be brought under control, and interest rates will start to ease back towards four per cent, which will massively help to improve affordability.”

Meanwhile, Propertymark chief executive Nathan Emerson suggested that another interest rate halt serves as “steady reassurance” for property investors. He said:

“Many families continue to struggle regarding the cost-of-living crisis, and it will hopefully come as a potential encouragement to families that there is no new elevated squeeze on their monthly budgets.

“Propertymark is still extremely keen to see both inflation and interest rates firmly come back under control once again. For a healthy property market, households need longer-term confidence beyond only financially making it to the end of each month.

“It is encouraging to witness many buyers still having the confidence to enter the market currently, but we need to see stability and a firm end to the potential dread some people experience each time there is a new interest rate decision.”

Currently, the average UK house price is £291,044 with 0.2% price growth, according to the HM Land Registry UK House Price Index. This

The Homelet Rental Index indicates that the average rental cost in the UK is £1,283 PCM with a 9.56% annual growth.

The figures show that property price growth has been outpaced by rental growth, suggesting that the current economic landscape may work for residential buy-to-let landlords.

Nationwide’s October House Price Index showed that house prices grew by 0.9% from their September average. With interest rates holding, this is another step in the right direction for the housing market.

Landlords agree. According to a recent survey by Leaders Romans Group, 75% of landlords see the current supply and demand in the housing market as a reason to add properties to their portfolio.

In comparison, 62% of landlords view the market as an opportunity to enjoy higher-than-usual rental yields.

In addition, easyMoney predicts property prices to reach £300K on average by 2025. While prices may remain low in 2023 and 2024, this could be the last opportunity for buy-to-let investors to take advantage of current prices before increased demand pushes house values up again.

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