Uncertainty continues to threaten the market

The UK housing market faces significant headwinds, including the threat of interest rate rises and mortgage affordability issues, which mean the sector is likely to remain stagnant until such uncertainties end, according to Emeritus Professor Joe Nellis, head of economic research at MHA.

Citing Lloyds’ August house price index, he said the housing market had stalled at a time of considerable economic uncertainty. “Average UK house prices have barely moved over the past two years, although some areas have performed significantly better than others, particularly Northern Ireland, Scotland and parts of the North of England. Buyers continue to face relatively high borrowing costs alongside continuing pressures on household finances,” he said.

It had been expected that the housing market would hold up, as real incomes recovered and due to a continuing shortage of housing supply. But he said the market faces significant headwinds.

“Mortgage affordability continues to hold back buyer demand, while the recent rise in borrowing costs following renewed geopolitical tensions has reversed the improvement in mortgage rates seen earlier in the summer. Bank of England figures show mortgage approvals for house purchases falling to around 56,100 in July, compared with 58,200 in June, while the effective interest rate on newly drawn mortgages increased from 4.35% to 4.45%.”

‘No signs of a housing recovery on the horizon’

And he was pessimistic about the future: “There are certainly no signs of a housing recovery on the horizon. Instead, the market is likely to experience an extended period of flat prices at best and relatively subdued activity.

“Prospects for the housing market over the next year or so will depend heavily on inflation, interest-rate expectations and household confidence – as well as any decisions affecting the housing market announced in the Budget on 28 October.”

He also said a possible interest rate rise before the end of the year added to the unknown. “Until that uncertainty is reduced, it is likely the housing market overall will remain stagnant. Unless there is a stronger improvement in affordability and a meaningful reduction in mortgage costs, house prices are likely to remain broadly stable, with significant regional variations continuing beneath the relatively subdued national picture,” he said.