Interest Rates

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UK interest rates were cut (from 5.25% to 5%) on 1 August 2024 for the first time since 2020, bringing relief to many households and businesses struggling with higher mortgage costs and debt repayments. 

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In a knife-edge decision that split the Monetary Policy Committee, members voted 5-4 in favour of the cut, with governor Andrew Bailey casting the deciding vote.

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The markets are expecting just one more (circa 0.25%) cut from the Bank of England in 2024, with November the most likely month for it to happen.

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Looking forward, there are countless opinions on what interest rates will do over the next few years. The general consensus appears to be that the base rate will be sitting at around 3.75% to 4% by the end of 2024 and that it will stabilise at that level for the foreseeable future. Will this be the new ‘norm’?

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This is feeding through to swap rates which have been in steady decline since their post-Truss-mini-budget spike and, in-turn, mortgage fixed rates with several high street lenders in another ‘rate war’ to roll-out (and publicise) the cheapest rate onto the market as swiftly as possible.

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Residential Property

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The reductions in mortgage interest rates have also driven a positive shift in the UK housing market, according to the Royal Institution of Chartered Surveyors (RICS).

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Its Residential Market Survey for August 2024 indicated an increase in both buyer demand and sales activity, with industry professionals expecting further growth in the final quarter of the year.

The survey found that the UK house price balance (the proportion of surveyors reporting a rise in housing prices minus the proportion reporting a fall in price) turned positive for the first time since October 2022, marking a significant turnaround from the negative 18 per cent in July and vastly exceeding analysts’ expectations, which had forecast a slight improvement to negative 14 per cent.

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Landlords and renters are facing the biggest changes to the private rental sector in decades under new legislation that will end “no fault” evictions and tighten standards for the conditions and maintenance of rented homes. 

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The Renters Rights’ Bill, just introduced by the new government is increasing both the requirements for landlords and protections for the 11 million renters in England, going even further than legislation proposed by the former Conservative government to end evictions under Section 21, which allows landlords to evict tenants with no reason.

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It appears Landlords are selling up their buy-to-let properties at record rates, as anticipated CGT hikes on the sale of BTL properties in the next budget add further pressure to the once lucrative investment sector, in fact (according to recent data from Rightmove) 29% of homes currently for sale in London had previously been rented out.

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Indeed, several lenders are reporting significant demand currently for specific mortgage products that allow for a “concessionary purchase”, meaning that a tenant can buy the property they are living in from their landlord at a marked-down price.

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Commercial Property

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The United Kingdom’s commercial property market is showing signs of a quicker recovery than the rest of Europe, following a challenging two-year period marked by high interest rates and the ongoing (post-Covid) re-evaluation of the role of office space.

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The latest data suggests that both deal volumes and property values in the UK saw an increase in the first half of 2024, with transaction volumes increasing by 7% and properties worth £21billion changing hands.

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However, this is not across all property types. Whilst the office market continues to struggle, demand has surged for certain real estate sectors, such as warehouses, residential properties and hotels.

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Outlook

 

There are several ongoing positive trends that will influence the UK property market, especially the projected continued fall in mortgage interest rates. But, the Buy to Let sector looks likely to have its own very unique ongoing challenges due to the widely expected changes around taxation and renter’s rights.

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Now, more than ever, you should be seeking professional advice if you are considering a new real estate purchase or would like to review your current arrangements and the team here would be delighted to hear from you.

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BY JON SCAMMELL, MANAGING DIRECTOR