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22 Dec, 2023

Will Lower Inflation Improve the UK Property Market in 2024?

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    What Do Lower Inflation Levels Mean for the UK Property Market?

    In November, inflation reached its lowest point in two years, sparking optimism that next year could see earlier-than-anticipated interest rate reductions and more affordable mortgage rates.

    Recent data from the Office for National Statistics reveals a notable decline in inflation from 4.6% to 3.9%, driven by decreased petrol and food costs.

    This unexpected and substantial decrease may bode well for the property market, potentially leading to increased buyer demand if it translates into interest rate cuts and reduced mortgage expenses.

    Let’s look at the inflation rates in relation to the buy-to-let property investment in more detail.

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    Why Has Inflation Affected the UK Property Market?

    Inflation rose due to a perfect storm of national and global economy-affecting events, namely the COVID-19 pandemic, the Ukraine war pushing up the prices of certain goods and Kwasi Kwarteng’s ill-advised mini-budget.

    When inflation rises, the Bank Of England has to raise interest rates to make the cost of borrowing more expensive. This leads to a slower housing market, falling prices, and more people entering the rental market looking for a home.

    Despite the considerable decrease in inflation from its 2022 peak, it remains nearly double the Bank of England’s 2% target. Consequently, many households may not experience an improved financial situation, given the persistent high costs of energy bills and borrowing expenses.

    However, lower inflation managed to convince the Bank of England to halt their interest rate rises at 5.25%. In response to a stabilising market, mortgage lenders have reduced their rates, tempting new buyers to the market to take advantage of high tenant demand and declining property prices.

    If you’d like to know more about interest rates, check out our UK interest rates chart.

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    Will Lower Inflation Improve the UK Property Market in 2024?

    While it is too early to say whether lower inflation rates will improve the UK property market in the near future, it is undoubtedly a step in the right direction regarding the cost of buy-to-let.

    Karen Noye, mortgage expert at Quilter, said: “The positive inflation figures this morning might potentially mean that the Bank of England is minded to reduce interest rates faster than originally predicted.

    “This will help reduce mortgage rates and coax more people into the market, and prices will resume their upward trajectory, whether for good or for worse.

    “We should be under no illusion though, things will still be difficult for borrowers in 2024 and anyone hoping for a return to ultra-low mortgage rates is likely to be disappointed.”

    Nathan Emerson, chief executive of Propertymark, said: “We are optimistic this may lead to a potential dip in interest rates in early 2024.

    “This will help restore stronger confidence to the housing market and make the prospect of buying and selling a house more attractive to consumers.”

    For more information on the UK property market, consider checking out some of our guides, including can foreigners buy property in the UK and where to invest money to get monthly income UK.

    You may also want to check out some of our buy-to-let city guides, including:

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    Dale Barham

    Dale is a property content writer at RWinvest. Keeping a close eye on the UK property market, Dale helps our readers stay informed and up to date on the latest market news and statistics.

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