UK housing market surges as mortgage rates drop and sales climb

Lower mortgage rates are boosting the U.K. housing market, following a rise in home sales last month, according to statistics. Agreed home sales increased by 25% year on year in the four weeks ending September 22, the quickest rate of growth since April 2021, "as households that have held off making moving decisions over the last two years return to the market," according to information published Thursday by property marketplace Zoopla.

According to the data, home buyer inquiries grew by 26% yearly during the same time.

The surge in housing market activity comes as a welcome relief to the sector, which had been grappling with the aftermath of the COVID-19 pandemic and subsequent economic uncertainties. Industry experts attribute this resurgence to a combination of pent-up demand, improved consumer confidence, and the current favorable lending conditions. The increased activity is not only benefiting homebuyers and sellers but also stimulating various related industries, from real estate agencies to home improvement businesses.

Following the report publication, shares of UK homebuilders Taylor Wimpey and Barratt Developments jumped by more than 2.1%.

According to Nationwide, home prices rose at the quickest rate in over two years in September, jumping 3.2% year on year from 2.4% in August, when lenders began cutting borrowing rates in response to the Bank of England's first interest rate decrease in over four years.

Mortgage rates have dropped to an average of 4.57% for a five-year fixed term, down from 5.53% last year, according to the most recent statistics published by property marketplace Rightmove. Some rates for such products have fallen below 3.7%, significantly below the BoE's 5% target rate.

This downward trend in mortgage rates has been a game-changer for many prospective homeowners who were previously priced out of the market. The reduced borrowing costs have effectively increased affordability, allowing a broader range of buyers to enter the property market. First-time buyers, in particular, are finding this environment more conducive to taking their first step onto the property ladder, with many able to secure more favorable terms than they could have just a year ago.

"Lower mortgage rates are delivering a much-needed confidence boost to homeowners, many of whom have sat on the sidelines over the past two years," said Richard Donnell, executive director of Zoopla, according to the article.

Mortgage approvals increased in August to their highest level in two years, according to the Bank of England on Monday. Market watchers are now waiting for the BOE's November 7 meeting to see if borrowing rates will be reduced further, with Governor Andrew Bailey telling the Guardian on Thursday that the Bank may be "a little more aggressive" on rate reduction if inflation statistics remained strong.

The potential for further rate cuts has sparked debates among economists and policymakers about the long-term implications for the UK economy. While lower rates can stimulate economic growth and support the housing market, there are concerns about the risk of overheating and the creation of asset bubbles. Balancing these factors will be crucial for the Bank of England as it navigates the delicate task of supporting economic recovery while maintaining financial stability. Price growth diverges with the budget in view.

On an annual quarterly basis, house prices rose the greatest in Northern Ireland (8.6%) and Scotland (4.3%), while the north of England outpaced the south, according to Nationwide statistics. Nonetheless, London remained the best-performing southern area, with a 2% price increase.

According to Nationwide's Chief Economist Robert Gardner, apartment sales continue to underperform in the post-pandemic "race for space."

More such stock has entered the market as landlords seek to sell their buy-to-let homes ahead of predicted tax increases in the Labour government's approaching October 30 Autumn Budget.

According to Donnell, this will likely limit price rise in the following months as more second-home owners enter the market.

"Speculation about potential tax changes in the Budget, as well as the impact of prior tax adjustments, are contributing to the increase in the number of properties for sale. We are still in a buyer's market, and a better selection of properties for sale will keep house price inflation in control until 2025," he stated.

Finance Minister Rachel Reeves has stated that she expects to hike taxes after uncovering a £22 billion ($29 billion) "black hole" in the national budget.

After ruling out adjustments to income tax, National Insurance social security payments, and value-added tax (a sales charge), hikes in capital gains tax and inheritance tax — both of which affect property transactions — remain on the agenda.

The looming tax changes have created a sense of urgency among property investors and second-home owners, leading to increased market activity in certain segments. This influx of properties, particularly in the buy-to-let sector, could potentially reshape the rental market landscape in the coming years. Housing experts are closely monitoring these developments, as they could have far-reaching effects on housing affordability and availability, especially in urban centers where rental properties play a crucial role in accommodating a diverse population.

Meanwhile, potential changes to the country's contentious non-dom tax status are boosting seller activity at the top end of the market, as ultra-wealthy UK citizens consider moving to other lower-tax jurisdictions.