Change in Property Interest Rates

Reports coming from RICS, news outlets, and other sources all hint at a move towards lower interest rates from the Bank of England and questions over where the new supply of homes will come from. Let’s take a look at some of the opportunities and challenges that may arise now the dust has settled.

What to Expect with the New Government

The new government, led by Keir Starmer, looks set to get a boost to house sales over the next three months according to RICS with 20% of professionals surveyed seeing positive signs. This shows the highest expectations since 2022 but comes with the caveat of a lack of housing supply. How the government reacts to this and how the BOE rates change as a result will play a significant role in affordability. So lower interest rates. Is it always good?

Lower Interest Rates

The Bank of England has announced the rate will change to 5% with further plans for a ‘slow and steady reduction path’. It’s worth noting however that these changes are expected but not certain with Reuters reporting;

“Over 80% of economists, 49 of 60, in the July 18-24 poll said the Bank would cut to 5% on Aug. 1. However, a similar sample of respondents in a June poll were more convinced of a move next week, with 97% predicting it then.”

If this change goes ahead it is projected to be a slow decrease with lower rates potentially in the wings for the end of the year with 77% of respondents, or 17 of 22, still expecting the rate to be higher than they expected. This points to a decline in rates but not quite the low rates enjoyed between 2010 and 2020.

We will see what rate changes are announced in the next BoE Monetary Policy Report but all signs point to a slow and steady drop in interest rates. This will of course excite the market and allow more buyers into affordable ranges but comes with the danger of too much demand, and too little supply.

The Plans for Housing Supply

Traditionally, lower interest rates make mortgage costs more affordable, which enables the market to expand and allow more mortgages. As a result, we can expect to see more buyers enter the market and drive up the demand for houses.

However, this brings up the question of housing supply, and what will be required to meet the demand of a busier market. It will be an uphill battle, and one that may take several years given the number of cogs in the property development machine.

For more specific examples, our team has investigated what needs to be done in this enlightening piece on Election Comments, including addressing skills shortages and policy changes to streamline the development of residential and commercial properties.

All of this is to say that balancing supply and demand along with a fledgling Labour government leaves a lot yet to be decided. All signs point to a positive change but time will be the true test with RICS summing up the picture succinctly:

“While the recent picture for house prices has remained somewhat negative across much of the UK, it is particularly noteworthy that near-term price expectations stabilised during the latest survey round. Indeed, having been stuck in contractionary territory for the past two years, the three-month ahead price expectations series recorded a net balance of +5% in June. This neutral reading implies that respondents now sense the decline in house prices has largely run its course.”

Rentals Face Challenges

Last, but not least, rentals also look set for a shake-up after the election. Chief among these will be regulatory changes and checks and balances, more information can be found here in our blog on What a Labour Government means for the Private Rental Sector (PRS). However, even with more hoops to jump through, there has been a rise in tenant demand with reports of 28% of those surveyed and a decline in listings.

This means that despite their best efforts, the new government will have to do a lot to either support the rental market or find otherwise to reduce taxes and improve incomes so that renters will be able to afford a home in a competitive market.

Work with the Best

Given our years of experience, this is not the first nor the last time we will see a new government shake up the market with interest rate changes and sweeping policies.

In these times, it’s best to learn about intentions and plans, examine the market, and make informed decisions. To assist with this we offer a range of valuation and survey services to help you make the most of your investment. For more information on how we can assist, contact our team today