Lower Mortgage Rates Boost U.K. Housing Market Sales

Lower mortgage rates drive a 25% rise in home sales, signaling a robust recovery in the U.K. housing market, Zoopla reports.

Lower mortgage rates are igniting a resurgence in the U.K. housing market, with recent data revealing that home sales surged last month at the most rapid pace since the post-lockdown boom. According to property portal Zoopla, agreed home sales experienced a remarkable 25% year-on-year increase in the four weeks leading up to September 22, while new buyer inquiries escalated by 26%. Analysts speculate that potential tax alterations in the Treasury’s forthcoming Autumn budget, scheduled for October 30, may further stimulate the market by introducing additional properties for sale.

This uptick in home sales is particularly noteworthy, as it marks the fastest growth rate since the spring of 2021, a period characterized by a significant rebound in housing activity. Households that had previously deferred their moving decisions during the pandemic are now re-entering the market, as highlighted by Zoopla's recent research. The data also indicates a concurrent rise in buyer inquiries, suggesting a renewed interest in property acquisition.

In the wake of this positive momentum, shares of prominent U.K. homebuilders, including Taylor Wimpey and Barratt Developments, saw an increase of over 2.1% following the release of this data. Additionally, house prices have begun to rise at their quickest rate in nearly two years, with Nationwide reporting a 3.2% year-on-year increase in September, up from 2.4% in August. This shift coincides with lenders slashing borrowing costs in response to the Bank of England’s first interest rate cut in over four years.

Currently, mortgage rates have plummeted to an average of 4.57% for a five-year fixed term, a significant decrease from 5.53% last year. Some rates for such products have even dipped to an enticing 3.7%, well below the Bank of England’s key rate of 5%. Richard Donnell, executive director at Zoopla, remarked that these lower mortgage rates are providing a much-needed confidence boost to homeowners, many of whom have been hesitant to engage in the market over the past two years.

Furthermore, mortgage approvals surged in August, reaching their highest level in two years, as reported by the Bank of England. Market observers are now keenly awaiting the BOE’s upcoming meeting on November 7, where further adjustments to borrowing costs may be discussed. Governor Andrew Bailey hinted that the Bank could adopt a “bit more aggressive” stance on rate cuts if inflation data continues to exhibit favorable trends.

Interestingly, house price growth has been most pronounced in Northern Ireland (8.6%) and Scotland (4.3%) on an annual quarterly basis, with the north of England outpacing its southern counterparts, according to Nationwide data. Nevertheless, London remains the standout performer in the south, recording a modest 2% price growth. However, it is worth noting that apartment sales are still lagging in the post-pandemic “race for space,” as observed by Nationwide’s Chief Economist, Robert Gardner.

As landlords anticipate potential tax hikes in the Labour government’s upcoming Autumn budget, an influx of buy-to-let properties is entering the market. Finance Minister Rachel Reeves has indicated the necessity of raising taxes following the discovery of a £22 billion ($29 billion) “black hole” in public finances. While changes to income tax, National Insurance, and value-added tax have been ruled out, increases to capital gains tax and inheritance tax—both of which directly impact property sales—remain on the table. Additionally, potential modifications to the contentious non-dom tax status are prompting increased seller activity at the upper echelons of the market, as ultra-wealthy U.K. residents contemplate relocating to jurisdictions with more favorable tax regimes.