Falling Mortgage Rates Boost Demand in UK Housing Market

The latest Royal Institution of Chartered Surveyors (RICS) survey reveals improved buyer enquiries and higher home sales in Britain, thanks to lower mortgage rates. Get the full report here.

The housing market in Britain showed signs of improvement last month, with falling mortgage rates leading to increased demand, according to a survey released by the Royal Institution of Chartered Surveyors (RICS) on Thursday. The RICS measure of new buyer enquiries rose to a net balance of -3 in December, the least negative reading since April 2022, compared to November's -13. Additionally, a gauge of agreed home sales increased to -6 in December, the highest reading since March 2022. The lower borrowing costs in financial markets have provided some relief for the sector in recent weeks after a challenging 2023.

This survey is in line with other measures of Britain's housing sector that have also pointed to a stabilisation. Mortgage rates have eased in recent months from their record highs in the aftermath of the "mini-budget" crisis in late 2022, although they are still elevated in historical terms. The Bank of England has held its benchmark Bank Rate at a 15-year high of 5.25% at its last three meetings after 14 consecutive increases between December 2021 and August 2023. However, a surprise uptick in inflation in December diminished investors' rate cut expectations on Wednesday.

The RICS' house price balance, which measures the gap between the percentage of surveyors seeing rises and falls in house prices, rose to -30 in December from -41 in November. This is a significant improvement from readings below -60 in September and August, the lowest since 2009. Demand also continued to rise in the lettings market, although at a softer pace over recent months, and rents are projected to rise by around 4% in the coming 12 months, inflated by a lack of available properties.

The housing market in Britain has shown signs of stabilisation, with falling mortgage rates leading to increased demand. The easing of borrowing costs in financial markets has provided some relief for the sector, and other measures of the housing sector also point to a stabilisation. However, mortgage rates are still elevated in historical terms, and the Bank of England has held its benchmark Bank Rate at a 15-year high. Demand in the lettings market continues to rise, but at a softer pace, and rents are projected to rise by around 4% in the coming 12 months due to a lack of available properties.