UK housing market at risk from bond turmoil, surveyors warn
THE UK housing market faces a “significant headwind” if government bond yields remain elevated, the Royal Institution of Chartered Surveyors (Rics) warned after activity among buyers and sellers showed signs of easing last month.
Rics said its gauge of new buyer interest fell to 5 in December, the weakest in five months. Property surveyors also scaled back expectations of home sales and supply as the number of market appraisals undertaken fell to its lowest in a year.
The figures indicate the housing market ended 2024 feeling the effects of stubbornly high mortgage rates and fears of economic stagnation in the wake of Chancellor Rachel Reeves’ tax-raising budget. Affordability risks being further stretched by the new year bond market sell-off that has pushed benchmark borrowing costs to levels last seen in the 2008 financial crisis.
“The macroeconomic environment looks to have turned more challenging of late,” Rics said in its monthly survey published on Thursday (Jan 16). “Indeed, the recent rise in bond yields along with other lending rates, if sustained, may prove to be a significant headwind moving forward.”
Higher debt costs threaten to put the brakes on a housing market that proved resilient for much of 2024, thanks to recovering living standards. Official data on Wednesday showed prices rose 3.3 per cent in the year to November, the fastest annual pace in almost two years.
Swap rates used to price mortgages have been rising since the start of the year. According to Moneyfacts, average rates on the most popular home loans are at their highest in over a month. There was some relief on Wednesday as bonds soared and yields fell on news of an unexpected slowdown in inflation.
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“Demand will come under more pressure as the impact of higher borrowing costs feeds through into mortgages,” said Tom Bill, head of UK residential research at Knight Frank. “Financial markets are often more volatile in January and president Trump’s inauguration has added to the instability in debt markets this year, intensifying the mortgage pain caused by the Budget.”
Rics’s measure of house price growth rose for a fifth consecutive month in December. Home values rose across all UK regions, with Northern Ireland and Scotland recording the strongest increases.
The index measures the breadth rather than the depth of price increases. It looks at the difference between surveyors reporting a rise in home values over the past three months compared to those that saw a fall.
For now, surveyors expect house prices will keep rising. Supply is set to dwindle, as the report suggests fewer homes are being prepared for sale than at the same last year.
The market is being supported by a rush to complete transactions before relief on stamp duty, a tax on homebuying, expires at the end of March. However, some agents are warning of a drop-off in demand thereafter, while others expect buyers will try to negotiate down house prices after the deadline.
“The resilience of the uplift in market mood could be tested if the mortgage rates do begin to climb in a material way over the coming months,” said Simon Rubinsohn, chief economist at Rics. “That, critically, would also be a concern for developers who will want to see a solid market as a backdrop for ramping up housebuilding to help meet the government’s ambitious 1.5 million homes target for this parliament.” BLOOMBERG
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