UK property market update – A pause before the election?

The average price of UK properties newly listed for sale has hit a record high of £375,131 in May, a 0.8% increase (+£2,807), according to Rightmove, a property portal. This rise reflects the typical spring selling season’s momentum, but the UK’s broader economic fragility makes the market highly price sensitive. However, average asking prices are  0.6% higher than the same period last year, indicating cautiously positive market behaviour amidst election-related uncertainties.

For expat buy to let property buyers, this could represent an important change in sentiment. UK  house prices have fallen back over the period of steeply rising UK Base Rates, a trend which started at the end of 2021 and continued throughout 2022 and 2023, before UK Base Rate levelled out at its current figure of 5.25% in mid 2023. Now UK house prices are showing  signs not only of stability, but also of modest growth, indicating a stronger period of price growth could materialise soon.

If prices do now continue their gentle upward trend.  hindsight will tell us this was the start of buying point for expat buy to let investors.

The announcement of the general election has now compounded market nervousness. However, latent demand from potential buyers who postponed their plans last year significantly boosted home mover activity in the first quarter of 2024. This occurred despite mortgage rates remaining higher than anticipated. As an online expat mortgage broker, we observed a sharp increase in sales agreed in January and February, as pent-up demand began to materialise. However, as hopes for an immediate UK Base Rate cut diminished, transaction volumes stabilised in March and April. Renewed growth in inquiries began in May, as confidence in an imminent UK Base Rate reduction re-emerged. Notably, UK inflation has decreased from over 11% last year to just above the Bank of England’s target of 2% in April, with May ‘s figures expected to be broadly stable at the same level.

Rightmove data shows that the number of house sales agreed during the first four months of the year is 17% higher than the previous year, surpassing the 12% rise in new listings. This demand-supply imbalance supports property prices and suggests the upward pressure on prices can continue.

Future Interest Rates and the election’s impact

With the UK general election set for early July, the Bank of England is unlikely to change interest rates before its August meeting, so it avoids any perception of political influence. Therefore, the first UK Base Rate cut is anticipated by many in August, providing UK inflation data continues to improve.

From August onwards, we are expecting lenders to reduce their mortgage rates, with the most significant impact being on variable and 2 to 3-year fixed rates. Five year fixed rates already factor in much lower future UK Base Rates, offering good value for those seeking longer-term stability today.

Looked at dispassionately, today, expat property investors, as they are not subject to the pressures of the domestic UK economy, can profit from weaker UK house prices, a process that started in 2022 and at the same time benefit from attractive longer term five year fixed mortgage rates which now stand at around 5.30%.

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