UK housing market still in a fragile place
Tuesday’s Nationwide index showed UK house prices broadly flat in August, up just 1.6% yoy, and follows downbeat readings from Lloyds (+0.1%) and Rightmove (-1%) that point to flat or negative inflation. The most recent Royal Institution of Chartered Surveyors (RICS) survey indicated a net majority of UK estate agents reported falling prices (-30%) in July, with expectations for sales and activity still very subdued. Mortgage approvals of 56,100 in July, were also down sharply by 15% yoy. That said, Zoopla reported property searches on their website rebounded in August (+7% yoy), a tentative sign that homebuyers were returning.
However, it now seems the initial US-Iran ‘peace deal’ and fall in oil prices towards $70pb in July merely provided a temporary reprieve for the housing market. Average two-year (75% LTV) quoted mortgage rates fell to a four-month low of 4.8% in July. However, renewed fears on the Middle East have resurfaced, leading markets to now almost fully price-in three 25bp rate hikes from the Bank of England to 4.5% over the next 12 months. Hence, 2-3 year swap rates have picked up towards 4.4%, close to their highest level in 2026, threatening a fresh squeeze in credit availability. UK Finance figures published this week demonstrated the negative impact of higher interest rates on affordability. The typical first-time-buyer in June faced mortgage payments equivalent to 22.6% of their gross income, the highest proportion since the GFC.
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