Lower mortgage rates ease housing market downturn

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Mortgage rates have dropped in recent months from their record highs in the aftermath of the “mini-budget” crisis in late 2022, although they are still higher in historical terms

The downturn in Britain’s housing market eased last month as declining mortgage rates pushed up demand, according to a survey published by the Royal Institution of Chartered Surveyors (RICS) on Thursday that added to indications of stabilisation in the sector.

The RICS measure of new buyer enquiries increased to a net balance of -3 in December – its least negative since April 2022 – from November’s -13. A gauge of agreed home sales rose to -6 in December, the highest since March 2022.

Tarrant Parsons, senior economist at RICS, said lower borrowing costs in financial markets had provided some relief for the sector in recent weeks after a challenging 2023.

Supported by an easing in mortgage interest rates of late, buyer demand has now steadied, and this is expected to translate into a slight recovery in residential sales volumes over the coming months, he said.

Thursday’s survey reflected other measures of Britain’s housing sector that have pointed to a stabilisation.

Mortgage rates have dropped in recent months from their record highs in the aftermath of the “mini-budget” crisis in late 2022, although they are still higher in historical terms.

The BoE has held its benchmark Bank Rate at a 15-year high of 5.25% at its last three meetings after 14 successive increases between December 2021 and August 2023.

A surprise rise in inflation in December reduced investors’ rate cut expectations on Wednesday.

The lending climate is set to stay restrictive compared to much of the post-global financial crisis era next year, meaning any uplift in activity is likely to be limited for the time being, Parsons added.

RICS’ house price balance, measuring the gap between the percentage of surveyors seeing increases and declines in house prices, increased to -30 in December from -41 in November and readings below -60 in September and August, the lowest since 2009.

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