It was a busy summer of news for the housing market – here’s what you need to know.
In August, the Bank of England (BoE) reduced Bank Rate from 4.25% to 4%. This is the lowest level in two years and the fifth cut since August 2024. However, the decision wasn’t straightforward as the Monetary Policy Committee (MPC) required two rounds of votes to reach a majority. Ultimately, five members were in favour of lowering the rate, while four wanted to hold it at 4.25%.
Since the rate cut, data shows that UK inflation was 3.8% in July, which is higher than expected and nearly double the BoE’s 2% target. The Bank believes this rise is temporary, caused by food, energy and other price increases, so expects inflation to fall back in the coming months. Even so, experts predict that this will prompt the MPC to take a more cautious approach to future cuts.
Impact on the housing market
Changes to Bank Rate directly affect the cost of borrowing. With 900,000 mortgage deals coming to an end in the second half of 2025, many homeowners may now benefit from slightly reduced rates. However, it might not be a drastic change, as Richard Donnell at Zoopla explained, “The price of fixed rate mortgages already factors in the future path of base rates meaning average mortgage rates are likely to remain broadly where they are today.”
Affordability slowly improving
After housing affordability worsened during the pandemic, it is now steadily improving. This is due to a combination of strong income growth, slower house price growth and easing of mortgage rates. Currently, the average UK home costs about 5.75 times typical income, a significant improvement on 2022’s all-time high of 6.9 and the lowest this ratio has been in over ten years. Along with increased availability of high loan-to-value mortgages, this has made buying more achievable for many borrowers.
Modest house price growth
House price growth picked up slightly in July with annual growth of 2.4%, up from 2.1% in June. There was a month-on-month rise of 0.6%, taking the value of the average home to £272.664. Although marginal, this uptick is positive as it suggests that the housing market is showing some resilience following the Stamp Duty reforms in April.
Market outlook
Robert Gardner, Nationwide’s Chief Economist, said, “Despite wider economic uncertainties in the global economy, underlying conditions for potential home buyers in the UK remain supportive.” He continued, “Providing the broader economic recovery is maintained, housing market activity is likely to continue to strengthen gradually in the quarters ahead.”
Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay and early repayment charge to your existing lender if you remortgage.
Sources:
https://www.nationwide.co.uk/media/hpi/reports/annual-house-price-growth-edges-higher-in-july
https://www.bbc.co.uk/news/live/cedvn267z0jt
https://www.bbc.co.uk/news/articles/cdd3qm7ly8ro
https://www.zoopla.co.uk/discover/property-news/what-do-higher-interest-rates-mean-for-the-housing-market/
