What's going on with the property market?

It’s often said that a week is a long time in politics – the much-quoted quip from Prime Minister Harold Wilson in the 1960s – but it might also be said that 24 hours can be a long time in mortgages.

In the space of a day, the release of some key pieces of data, plus a base rate decision from the Bank of England, not only reflect what’s going on in the housing, consumer and financial markets, but may also potentially shape the twists and turns of the mortgage market going forward over the coming weeks and months.

This plethora of information and opinion to digest all helps to build a picture of where the market is currently, even if that picture is somewhat mixed and somewhat open to interpretation – more Picasso, than Constable, some might say.

Data released by the Office for National Statistics (ONS) early yesterday, even before we had time to butter our morning toast, showed that annual inflation in the UK was 2.2% in August 2024, unchanged from the previous month. The Consumer Price Index (CPI) rose by 0.3% on a monthly basis in August, which is the same rate as last year.

David Hollingworth, associate director at broker firm L&C Mortgages, had already eaten his Weetabix, it seems - he was upbeat about the latest update.

“Inflation holding steady at a rate of 2.2% may sound underwhelming but is likely to be viewed positively,” suggested Hollingworth (pictured left).  “It was in line with forecasts so shouldn’t create any waves in what the market expects, and the Bank of England has already signalled that it expects inflation to rise as the year progresses.  

“So, although above the target rate of 2%, today’s stable figure shouldn’t alter the expectations that we could see another rate cut before long.”

While he didn’t anticipate that development coming in this lunchtime’s announcement on the base rate from the Bank of England’s Monetary Policy Committee (MPC), Hollingworth believed it wouldn’t undo any of the progress in mortgage rates, which have once again been shifting rapidly as lenders boldly cut their fixed rates. 

“That’s seen some substantial improvement in the available mortgage options with two-year fixed rates now joining the five-year deals below the 4% barrier,” he noted. “The level of competition between lenders remains intense and they’ve continued to reprice regularly to try and keep up with peers. That will help to keep rate improvements coming for mortgage borrowers, as the focus shifts to the base rate decision.”

Will a further base rate reduction happen today?

Following the cut in the base rate last month, the first since March 2020, almost half of UK adults (44%) think that based on the current economic conditions the MPC should cut the rate again, according to research from the Building Societies Association. Around a quarter (23%) of the just over 2,000 people it surveyed want to see a 0.50 percentage point cut or more, with a similar number (21%) who believe a cut of just 0.25 percentage points is needed.

This may very well be wishful thinking. Tanya Elmaz, director of intermediaries at specialist lender Together, isn’t expecting a rate cut, off the back of yesterday’s inflation update.

“Inflation is always key when considering base rate changes,” reasoned Elmaz (pictured centre) “While this is much lower than at the peak of the cost-of-living crisis in 2022, we’re probably looking at it coming down closer to the Bank of England’s 2% target later in the year, when we’d expect to see base rate cuts.

“Persistent inflation means that we will likely have to wait until next month, or even later, to see any cuts. I believe that there will likely be one or two small base rate cuts before the end of the year.”

No-one could accuse the ONS of shirking its responsibility in keeping us all informed. It also delivered its House Price Index yesterday, which showed that the average UK property price increased by 2.2% in the 12 months to August, to a not too shabby £290,000, which Nick Leeming, chairman of estate agent Jackson-Stops, greeted warmly.

“For the first time, house prices are reflecting a cautiously positive afterglow from Labour’s election victory and showing a promising picture for the start of autumn,” said Leeming (pictured right). “Post-election stability coupled with the first base rate cut in four years - which has steadied mortgage rates - have renewed buyers’ intent and underpinned stronger house price growth.”

Leeming confirmed that business was brisk at his network, with completions in July on a par with a year prior and up significantly month-on-month. New applicant levels had increased by nearly a fifth (18%) on an annual basis, and rose by 10% month-on-month, he said, but he cautioned about overstating the market’s resurgence. Was this ‘The Starmer Effect’?

“The property market knows all too well that calling 2024 the year of recovery would be premature,” he said.  “We are now on the cusp of Labour’s first budget in more than a decade, and expectations are already being managed, with difficult decisions on the cards. While strengthening the UK’s financial resilience is a clear priority for the new government, anything that could undermine what has become a positive period of activity in the property market, should be approached with caution and handled with care.”

Buyers’ confidence would always, to varying extents, be influenced by the wider economic picture, he said.

“It is essential the new government introduces polices to address the supply and demand imbalance, but at a rational rate,” Leeming urged. “The market needs consistency and certainty, not knee-jerk reactions and short-term solutions.”

Read more: London lettings market sees surge in demand and listings

Which factors are impacting the mortgage market?

North London estate agent Jeremy Leaf, a former residential chairman of the Royal Institution of Chartered Surveyors (RICS), was in a rather more bullish mood. Falling mortgage rates, steadier inflation and more political certainty have helped to release pent-up demand and supply, he reasoned.

“The market is baring its teeth once more, demonstrating considerable resilience as these figures, unlike others, reflect cash and mortgage transactions in the build-up to the election when we would have expected economic worries to have compromised prices,” observed Leaf.

“Looking forward, we do not anticipate prices will pick up sharply as the improved choice and concerns, particularly among higher-end buyers and sellers, mean caution is prevailing.”

For Gareth Lewis, managing director of specialist lender MT Finance, property prices rising was due to there not being enough sales transactions.

“Those buyers that are going ahead are paying a higher premium because there is still less stock available,” he declared. “However, agents report seeing an increase in activity.  The government should be mindful that it still needs the property market to be functioning and ultimately that comes from more stock and more transactions. Some stimulation is essential to encourage more people to move."