With the Bank of England holding interest rates for the fifth consecutive time at 5.25% last month, speculation concerning the state of the housing market continues to be had as we head into spring. Despite the fact that interest rates increased to levels not observed since 2008, industry analysts are impressed with the current stability the UK housing market has achieved since the start of this year.

Tom Bill, the head of UK residential research at Knight Frank, commented that there will be a ‘recognisable spring bounce in activity’, expecting ‘UK prices to rise by an average of three per cent this year as the market recovers from a subdued 2023’.

Such a position reflects boosted confidence in the UK housing market, a promising sign following the inertia the market has felt over the previous year. In order to understand this general sense of optimism, let’s take a closer look at the trends and patterns the market has undergone over the past quarter.

What is the State of Mortgages?

On the whole, mortgage rates continue to be a sore spot among industry experts. Moneyfacts identified that the average two-year fixed deal has risen from 5.56 per cent to 5.76 per cent and a five-year fixed rate from 5.18 per cent to 5.34 per cent between February and March 2024.

These figures, however, are situated in a substantial increase in mortgage demand since the start of the year. According to the Bank of England’s quarterly survey, which gathers information from lenders reporting demand for home loans against those reporting a decrease, the demand rose to 35.9 in the first quarter. This is impressive considering this was the first net positive result since the second quarter of 2023.

Furthermore, the Bank of England is expecting for the next three months mortgage demand to reach the highest score of the year with 23.2 and remortgage demand to reach its highest level in over two years. Despite the average increases in mortgage rates of last month, it’s clear that consumer interest is picking up at a remarkable level, a position reflected in UK mortgage approvals hitting a 17-month high.

Not only does this data point to confidence informing increased consumer demand, but it also indicates that momentum is being generated heading into the second quarter. It’s what Jeremy Leaf, former residential chair at the Royal Institution of Chartered Surveyors, aptly described as consumers emerging ‘from an extended hibernation, which resulted in a subdued market for much of last year’.

What is the State of the Housing Market?

Another important trend to observe is the state of the housing market. Despite the dispirited projections that housing prices would fall between 5 and 10 per cent by December 2023, residential prices have remained stable and resilient. In this climate, it has provided a sturdy foundation, playing an important role in supporting demand.

The UK House Price Index pointed towards the provisional average UK house price as £282,000 in January 2024, down £2,000 from January 2023. Looking more closely at these statistics, the annual price changes between January 2023 and January 2024 have decreased noticeably in the South East (-3.1 per cent), the East of England (-2.2 per cent), and London (-3.9 per cent), while increases are found in the West Midlands (0.6 per cent) and the North West (1.0 per cent). Further to this is the recent increase in February of property values up to 1.2 per cent, according to the Nationwide Building Society, albeit falling back to 0.2 per cent by March.

With property listings increasing for the fourth month in a row, the Royal Institution of Chartered Surveyors predict that over the next year a balance of 46 per cent expect an increase in sales. Add to that property professionals reporting a net balance of 8 per cent seeing inquiries from new buyers – which is, one might add, the highest since February 2022 – it’s becoming increasingly clear that confidence is being exhibited by industry analysts and consumers. For the former, a consistent theme is the more generally optimistic projections and evaluations; for the latter, the data indicates greater demand and participation in the housing market.

What to Expect Going Forward?

In examining these two aspects, namely the state of mortgages and housing prices, one element remains striking: the UK housing market is on track to bounce back with confidence and vibrancy. These conditions are exciting for potential new homebuyers.

Looking ahead, with inflation set to drop below 2 per cent in the second quarter, income generally outpacing house price growth, and the expectation that the Bank of England will incrementally reduce interest rates over the coming year, now is an excellent period to keep an eye on.

As mentioned at the start, this general sense of optimism is the defining theme underlying the second quarter. And notwithstanding unforeseen economic and political developments, the future of the UK housing market looks bright in turning to a warm, lively season.