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Bank of England’s Pause in Interest Rates Offers Potential Relief for Stagnant UK Housing Market

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Britain’s housing market is facing challenging times following a prolonged period of rising borrowing costs, according to a survey conducted by the Royal Institution of Chartered Surveyors (RICS). The study revealed that the RICS house price balance, which measures the difference between surveyors seeing increases and decreases in house prices, decreased slightly to -69 following a sharp drop in August. This figure represents the weakest reading since February 2009 and is below the median forecast of -63 according to a Reuters poll of economists.

The housing market experienced a boom during the pandemic as the demand for larger homes soared. However, the Bank of England’s (BoE) series of 14 interest rate hikes, which began in December 2021, has taken its toll on the market. As a result, surveyors expect further declines in both sales and prices in the near term. Nevertheless, the expected declines are not as severe as in previous months.

Tarrant Parsons, senior economist at RICS, highlighted that subdued buyer activity is a reflection of the ongoing challenge posed by the higher cost of mortgage borrowing for many households. Parsons stated that while the recent decision to pause monetary policy tightening offered some relief, interest rates are expected to remain on hold for a prolonged period. He added that there is little prospect of significant deviation from the current market situation in the immediate future, but the outlook may improve slightly in the long term.

The struggling housing market has had a negative impact on companies like Travis Perkins, a building materials supplier, which recently downgraded its annual profit forecast by up to 27%. In contrast, the property rentals market is experiencing high demand, with the RICS’ demand balance standing at +43. However, the number of available properties for rent has decreased, as reflected by the listings balance of -24. Respondents to the survey anticipate a growth of almost 5% in rental prices over the next year.

The findings of the RICS survey shed light on the current state of the UK housing market. Despite the recent pause in interest rate hikes by the Bank of England providing some hope for relief, the market remains uncertain. The challenging conditions have impacted companies like Travis Perkins, while the rental market continues to thrive with high demand and a shortage of available properties. The coming months will be crucial in determining whether the housing market can recover from its current downturn.

More detail via Reuters here… ( Image via Reuters )

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