According to those on the inside of the housing market, purchases appear to be slowing down. This is a surprising outcome due to the recent strength of demand shown in the market only last month. It could be hopeful home buyers are not backing away from the market but simply waiting out for the Bank of England’s Monetary Policy Committee (MPC) to cut the standard base interest rate. When that could happen is either likely this month or in August.

The Royal Institution of Chartered Surveyors (RiCS) has witnessed a dip in the housing market with 8% of property pros reporting a decline in demand. This is the weakest report from RiCS since last November. Also, 17% of property professionals reported a decline in prices. 

However, the outlook ahead is positive. Home buyers will likely come out to boost the market when lenders begin cutting rates. 

RiCS chief executive Justin Young said, “Despite an improving overall outlook, today’s data reveals that confidence in the housing market is beginning to dip, just as parties launch their manifestos.

“Greater attention must be paid to improving conditions for ‘generation rent’, who are faced with rising rents and a lack of suitable options.

“This particular demographic, typically made up of people aged between 18 and 40 has doubled in the last two decades, so politicians need to focus on them, as well as homeowners, as a means of gaining the support of a growing portion of the electorate.

“The housing market needs policies that think longer term, not short, and awareness that the different tenures are interlinked, so there is no one solution that will fix the situation.

“With the market under strain, the supply and demand gap in both lettings and buy side continues to create issues.”

RiCS therefore sees this as a longer term issue and not just a product of the wait for lender rate cut. House prices remain elevated from the pandemic lifestyle buying frenzy, interest rates are high, and supply is low in the market. Becoming a homeowner is difficult financially in the UK.

Not only is it difficult to become a homeowner, but it can be difficult to remain one. Interest rates available now are quite the shock for homeowners coming to the end of two-year fixed year deals or three-year fixed year deals. Lenders were offering much more affordable rates in 2022 and 2021. In shopping for a remortgage, homeowners are finding rates double or more their usual rate, but in bypassing a remortgage for the lender’s standard variable rate (SVR) it could be even more costly.

Tarrant Parsons, RiCS senior economist, remarked, “The recent recovery across the UK housing market appears to have slipped into reverse of late, with buyer demand losing momentum slightly on the back of the upward moves seen in mortgage rates over the past couple of months.

“Nevertheless, expectations point to this delaying, rather than derailing, a modest improvement going forward. Indeed, respondents continue to envisage a more positive trend in sales activity coming through over the year ahead, although this is likely predicated on the Bank of England being able to start lowering interest rates in the coming months.”

The next meeting of the MPC is on 20 June, which is one day following the second release of inflation data since the last MPC meeting. In May, inflation declined from 3.2% to 2.3%, only a bit shy of the expected and hoped for 2.1%. The target rate set by the Bank is 2.0%. If inflation shows a strong decline below target, there could be a surprise reduction of the base rate. It would be the first cut to the rate since March 2020.

If the MPC holds the rate steady as it has since last September following the rise to peak of 5.25% in August, then the next opportunity for a rate cut will be this August. There is not a meeting of the MPC scheduled for July.

Of course, even if lenders do cut their offerings with the MPC, it might be a small reduction to the already lower than expected deals available now. However, with the promise of inflation under control, lower rates, and a more optimistic outlook on the economy these factors combined could be the winning combination to keep the housing market robust.