Early signs of “a very modest decline in UK mortgage rates could offer some respite to the domestic housing market,” says the Bloomberg Intelligence unit.
The research group points out that market expectations of peak base rate hikes from the Bank of England have declined 70 basis points – to 5.7% from 6.4% last month — “amid tentative signs of slowing inflation”.
However, the unit adds that house prices and transactions may keep softening as long as mortgage rates remain above 5%.
The BoE lifted the base rate by 25bps to 5.25% last week, its 14th consecutive rise and the highest level for 15 years.
The central bank is battling inflation, which dropped to 7.9% in the year to June from 8.7%, but still remain almost four times higher than its 2% target.
Bloomberg Intelligence real estate analyst Iwona Hovenko says: “Tentative signs of easing cost pressures, with inflation slowing more than anticipated and the labour market also softening – as unemployment unexpectedly increased in June [by 0.1% to 3.8%] – could support some pull-back in rate views, in turn driving mortgage rates lower.
“This may, however, require several months of consistently slowing inflation and wage pressure. Despite recent news of mortgage-rate cuts by lenders, financing costs remain high and still pose a significant risk to housing activity and prices.”
Hovenko adds: “Though BoE data for June doesn’t yet reflect the latest steep increases, anecdotally, price-comparison websites show the lowest five-year fixed rates on a 75% loan-to-value mortgage soared to 5.44% in early August from about 3.9% three months earlier, with some of the biggest spikes coming in days.
“Comparable lowest two-year fixes surged to about 6% from a little more than 4% at the beginning of May.”
Hovenko points out: “Though surging rates may add urgency for buyers who have already secured a more-attractive mortgage offer, other house hunters may delay purchases until rates fall and housing-market headwinds ease.
“Such a rapid jump in rates may have particularly hit homebuyers heavily reliant on debt.”
