Bank of England Rate-Cut Expectations Impact Mortgage Rates and Housing Recovery, Says Bloomberg Intelligence’s Housing Pulse
Bank of England Rate-Cut Expectations Shift, Pushing Up Mortgage Rates
In a recent report from Bloomberg Intelligence, a shift in Bank of England rate-cut expectations has led to an increase in mortgage rates, potentially impacting the housing recovery in the UK. The report highlights that while there has been an improvement in sentiment, particularly in London, the rise in mortgage rates could pose a challenge to the housing market.
According to BI’s Housing Pulse report, there has been a rebound in mortgage approvals and private reservations for homebuilders Persimmon and Taylor Wimpey, indicating a positive trend in the housing market. However, demand still remains below pre-pandemic levels.
Iwona Hovenko, BI Real Estate Analyst, commented on the situation, noting that the delay in expected rate cuts by the Bank of England is a major obstacle to a full revival in the UK housing market. Mortgage rates have started to increase, reversing the easing seen earlier in 2023. Best-buy five-year fixed-rate deals have climbed to 4.2-4.4%, compared to 3.9% or lower earlier in 2023. Despite the challenges, there is an improvement in housing sentiment, with activity picking up in several leading indicators.
Hovenko also mentioned that once mortgage rates begin to ease further, it could boost mortgage affordability and breathe new life into the housing market. However, with current rate expectations suggesting only limited cuts, any shift in views could be a key catalyst for the market.
Market expectations point to relatively limited rate cuts in the next three years, with the BOE benchmark expected to fall only to 4.5% by next year and around 3.8% by mid-2027. A revision in views could have a significant impact on the housing market, although risks such as a seasonal summer slowdown, UK general elections in the second half of the year, and fragile geopolitics remain.
Despite the challenges, rising mortgage approvals for house purchases indicate a continued improvement in buyer demand. While March volume still lags behind the long-term monthly average, the steady growth suggests signs of demand recovery. Homebuilders like Taylor Wimpey and Persimmon have also reported increasing private reservations per site and sales rates, although they remain below pre-pandemic levels.
Overall, the housing market remains cautiously optimistic, with the potential for a meaningful rebound in transactions and new-home sales requiring a larger decline in mortgage rates. The report also highlights the importance of regulatory shifts and an unlocking of the congested planning system to support a recovery in the sector.
In particular, the report notes an improved relative affordability of London compared to the rest of the UK, potentially supporting demand revival in the capital. London-focused homebuilders like Berkeley could benefit from this trend, especially as the return to the office places emphasis on shorter commutes. Several sources have indicated increased demand in London, with the city leading the recovery in the housing market. London homes are selling faster than the UK average, indicating a positive trend in the capital’s real estate market.
