UK Housing Market Faces Prolonged Stagnation Amidst High Loan Costs and Uncertainty

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United Kingdom’s housing market is likely to face a prolonged period of stagnant house prices as elevated home loan costs, geopolitical tensions and domestic political uncertainty continue to slow buyer activity, according to Bloomberg’s analysis of the latest survey by the Royal Institution of Chartered Surveyors (RICS).

According to the survey, sentiment indicates little movement in house prices over the next three months. The outlook comes after house prices stalled for a second consecutive month in June, with Nationwide data showing the average home price at £277,484, hardly changed due to weakening demand caused by higher borrowing costs.

The challenges

The biggest immediate challenge for the housing market remains mortgage affordability, according to Bloomberg, The publication noted that the five-year sterling swap rate, a key benchmark for pricing fixed-rate mortgages, fell to around 3.5 per cent in late February, before climbing sharply to almost 4.5 per cent by mid-May following the escalation of the Iran conflict. Although swap rates later eased as oil prices retreated, Bloomberg said renewed concerns over the durability of the ceasefire pushed oil prices up again. Thus, leaving the five-year swap rate at about 4.24 per cent.

Higher energy prices have raised the risk of inflation, reducing the likelihood of a decline in borrowing costs and limiting the amount prospective buyers can borrow, the report said. Bloomberg argued that while stagnant house prices could gradually improve affordability, they present wider economic risks because fewer property transactions can discourage household mobility and related economic activity.

Domestic political uncertainty is another major headwind fueling concerns in financial markets. The report added that discussions over possible property tax measures, including lowering the threshold for mansion tax or introducing broader land tax reforms, could further discourage transactions, especially in the higher-value segment of the housing market.

The Guardian has previously reported that estate agents expect trading conditions to remain subdued through the summer, with any recovery likely to depend on greater stability in interest rates and geopolitical conditions.

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