Written by Iwona Hovenko, Real Estate Analyst at Bloomberg Intelligence
Surging mortgage rates – with the average rate on the relatively-cheaper five-year deals passing the 6% mark (although the cheapest five-year deals still remain just over 5%) – pose a threat UK Housing outlook and our previous expectations for a 5% decline in house prices in 2023.
The longer the mortgage rates remain near current elevated level, the larger the potential damage inflicted on house prices and transactions.
Yet once inflation starts slowing more meaningfully and expectations about Bank of England rate ease, mortgage rates could potentially moderate later this year, offering the UK housing market a respite. However, this may require several months of consistently falling inflation. The nearest big test may be the July inflation data (to be released in August) which will include energy price cap falling by almost 20%.
Unfortunately, in the prior few months data have shown inflation to be very sticky, which may keep mortgage rates high for the time being, implying risks for housing may be tilted to the downside.
