UK housing market recovery "clicking into place" ahead of spring

(Alliance News) - Some stability will come to UK house prices soon, as mortgage rates ease, analysts at Pantheon Macroeconomics believe.

The research house, though painting a largely promising picture for the sector's outlook, also tempered some optimism about the present situation.

"Official data suggest that house prices have barely dropped over the past year, but we're distrustful of their sanguine signal. The seasonally adjusted house price index in September was only 0.7% below its November 2022 peak and still a hefty 25% above its 2019 average, despite a 0.5% month-to-month decline. Other measures of house prices, however, have fallen much further. The Nationwide and Halifax measures were 4.5% and 3.5% below their 2022 peaks, respectively, in October, while the value of the average house purchase mortgage approval in September was 8.8% lower than a year ago," Pantheon analyst Samuel Tombs and Gabriella Dickens commented.

"Nonetheless, mortgage rates look set to fall more quickly over the coming months than we had previously expected."

The analysts still maintain that the Bank of England will enact 75 basis points worth of bank rate cuts next year, from the current level of 5.25%, before another 100bp of cuts in 2025. Pantheon did say, however, that they are surprised at how fast the rest of the market has rushed to agree.

Tombs and Dickens added: "As a result, the benchmark mortgage rate looks set to fall to about 5.1% by the end of this year, 30bp lower than we had previously expected. As we have seen recently, the relationship between mortgage rates and borrowing amounts is not stable; monthly repayments shift too."

Pantheon now expects house prices to stabilise in the first-quarter, once they are 5%, and not 6%, below their peak.

"Meanwhile, the conditions for a recovery in house prices from the spring of next year are clicking into place. The benchmark mortgage rate looks set to fall to around 4.5% by end-2024, further improving affordability. In addition, real household disposable income likely will continue to recover, given the outlook for modest increases in consumer prices and low levels of redundancies. This should make households more willing to make long-term financial commitments. On balance, then, we think house prices will return to their nominal peak by the end of 2024," the analysts added.

By Eric Cunha, Alliance News news editor

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