UK housing market's "rapid response" to BoE rate cut bodes well

(Alliance News) - UK house prices could register solid growth this year, Pantheon Macroeconomics believes, after the latest reading of the sector was a healthy one.

The Royal Institution of Chartered Surveyors reported a "positive shift" in the UK housing market in its latest residential survey for August 2024.

The sector was "spurred on by the recent decrease in mortgage interest rates".

"Buyer demand and sales activity are on the rise, with industry professionals anticipating further growth as we move into the final quarter of the year," Rics said.

"House prices are starting to increase after almost two years of decline with August's survey showing that prices have moved into positive territory for the first time since October 2022, with a net balance of +1 and with +14 of respondents predicting a steady rise over the next three months."

Pantheon analyst Rob Wood said the housing market has been "resilient" during a period of lofty interest rates.

"With real incomes continuing to rise and the MPC now cutting interest rates we expect house price inflation to accelerate. We look for year-over-year growth in house prices to rise to 4% by Q4 and see upside risks to that call. Moreover, the rapid response of the housing market to the MPC's first interest rate cut bodes well for wider economic growth. The housing market rebound suggests interest rates are less restrictive than the MPC assumes. Moreover, healthy house price gains usually go hand in hand with falling household saving, which would boost growth in the second half of the year. So we remain optimistic that GDP growth will exceed MPC forecasts," Wood added.

Capital Economics analyst Elias Hilmer also took a positive view of the housing market.

"August's RICS survey provided further evidence that housing demand is picking up in response to the recent falls in mortgage rates. What's more, our view that bank rate will be lowered by more than investors anticipate suggests mortgage rates will fall further next year. That will provide scope for house prices to beat expectations in 2025," Hilmer added.

The next Bank of England decision is on September 19.

Pepperstone analyst Michael Brown said onlookers may be "waiting for November" for the real action.

"Having delivered the first bank rate cut of the cycle at the August meeting, the MPC are likely to stand pat this time around, instead waiting for the November meeting, and forecast round, before further removing policy restriction. Nevertheless, any hints on the policy outlook, coupled with the annual review into quantiatitve tightening, could provide some areas of interest for market participants," Brown explained.

By Eric Cunha, Alliance News news editor

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