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The property market in the UK has been under significant pressure due to high interest rates and mortgage costs, compounded by the cost of living squeeze from elevated energy and food bills since 2022. Despite this, recent figures from the Royal Institution of Chartered Surveyors (RICS) suggest a more optimistic outlook.

Key Points:

  1. Price Expectations:
    • RICS reported a net balance of +54 of respondents among their members who believe property prices will rise over the next 12 months, indicating a positive shift in market sentiment.
  2. Economic Context:
    • High interest rates and mortgage costs have been major challenges for the property market.
    • Economic uncertainty driven by the political climate.
    • The cost of living crisis, driven by high energy and food bills, has also impacted the market negatively.
    • The RICS data suggest that its members believe we are seeing these factors start to slowly recede.
  3. Monetary Policy Changes:
    • The Monetary Policy Committee (MPC) of the Bank of England is anticipated to reduce the base rate from its 16-year high of 5.25% in August, with more cuts expected later in the year.
    • Anticipation of these rate cuts has led some high street banks to lower mortgage rates and increase the maximum size of loans available.
  4. Expert Opinion:
    • Tarrant Parsons, senior economist at RICS, noted that while housing market activity remained subdued recently, forward-looking indicators have shown marked improvements.
    • Parsons suggests that if the Bank of England finds the inflation environment benign enough to start easing monetary policy, this could further soften lending rates, potentially boosting the housing market.

Summary

While the UK property market has faced significant headwinds from high interest rates and a cost of living crisis, there are now more signs of the recovery really taking hold. RICS’s data points to rising confidence among respondents about property prices over the next year. The expected reduction in the base rate by the Bank of England, coupled with already decreasing mortgage rates from banks, supports a much more favorable outlook for the market. This has been reflected by adjustments upward to medium term market forecasts from agents such as Savills in their residential market report.

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