Is the dream of homeownership slipping away?
The UK housing market is encountering “significant headwind” as elevated government bond yields threaten to erode buyer confidence, according to the Royal Institution of Chartered Surveyors (RICS). In its latest monthly survey, RICS warned that persistent high mortgage rates and a turbulent macroeconomic environment could hinder market activity in the months ahead.
A Bloomberg report noted that the survey revealed RICS’s measure of new buyer interest dropped to 5 in December, marking its weakest level in five months. Property appraisals also fell to their lowest level in a year, signalling diminishing optimism among both buyers and sellers.
“Indeed, the recent rise in bond yields along with other lending rates, if sustained, may prove to be a significant headwind moving forward,” the report stated. The bond market turmoil, combined with economic concerns following Chancellor Rachel Reeves’ tax-focused budget, has added to the financial strain on prospective homeowners.
The impact of higher borrowing costs
Rising borrowing costs have emerged as a key concern. Swap rates, which influence mortgage pricing, have been climbing, with average mortgage rates reaching their highest levels in over a month, according to financial data provider Moneyfacts. Although a slight dip in inflation on Wednesday briefly eased bond yields, experts caution that continued rate volatility could exacerbate affordability issues.
“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, in an interview with Bloomberg. He also noted that volatility in financial markets, coupled with broader economic uncertainty, has intensified the strain on the housing market.
Can the market weather the storm?
Despite these challenges, the market has displayed surprising resilience. House prices rose by 3.3% in the year through November, the fastest pace in nearly two years, according to official data. RICS reported house price increases across all UK regions in December, with Northern Ireland and Scotland seeing the strongest gains.
However, the market’s resilience may be short-lived. With fewer homes being prepared for sale and the stamp duty relief set to expire at the end of March, surveyors expect a potential slowdown in demand later in the year. Some agents are already warning of declining buyer interest and potential price negotiations once the tax relief ends.
Simon Rubinsohn, chief economist at RICS, cautioned that rising mortgage rates could undermine confidence in the housing market. “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,” he said.
Higher borrowing costs are also raising concerns for developers. The government’s ambitious target to build 1.5 million homes during this parliamentary term may face hurdles if developers perceive the market backdrop as unstable.
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