Early signs of “a very modest decline in UK mortgage rates could offer some respite to the domestic

Early signs of “a very modest decline in UK mortgage rates could offer some respite to the domestic housing market,” says the Bloomberg Intelligence unit.

The research group highlighted the market expectations of peak base rate hikes from the Bank of England have declined 70 bps – to 5.7% from 6.4% last month — “amid tentative signs of slowing inflation”.

However, the unit adds that house prices and transactions may keep softening whilst mortgage rates remain above 5%.

The BoE lifted the base rate by 25bps to 5.25% last week, its 14th consecutive rise and the highest level for 15 years. The central bank is battling inflation, which dropped to 7.9% in the year to June from 8.7%, but remains almost four times greater than its 2% target.

Bloomberg Intelligence real estate analyst Iwona Hovenko says: “Tentative signs of easing cost pressures, with inflation slowing more than anticipated and the labour market also softening – as unemployment unexpectedly increased in June [by 0.1% to 3.8%] – could support some pull-back in rate views, in turn driving mortgage rates lower.

“This may, however, require several months of consistently slowing inflation and wage pressure. Despite recent news of mortgage-rate cuts by lenders, financing costs remain high and still pose a significant risk to housing activity and prices.”

Hovenko points out: “Though surging rates may add urgency for buyers who have already secured a more-attractive mortgage offer, other house hunters may delay purchases until rates fall and housing-market headwinds ease.”

There has already been a ‘noticeable shift’ in the number of properties coming onto the rental market in London as owners struggle to sell for the asking price.

According to research by Knight Frank, the number of lettings instructions in July in London was 18% higher than the same month last year and the highest for any single month since October 2020.

The company says this is down to the current uncertainty facing the sales market as rising mortgage rates put downward pressure on prices and sales volumes.