Bank of England Housing Update (November 2024)

At its meeting on November 11th, 2024, the Monetary Policy Committee (MPC) voted by a majority of 8 to 1 to reduce the Bank Rate to 4.57%. However, 1 members preferred to maintain Bank Rate at 5.00%.

The rate cut came as a surprise to some, as mortgage rates started to increase again after Rachel Reeves Budget and in anticipation of American Elections.

The Budget is provisionally expected to boost CPI inflation by just under ½ of a percentage point.

One member (Catherine L Mann) preferred to maintain Bank Rate at 5%. For this member, structural factors in wage and price-setting dynamics continued to draw out the underlying disinflation process, and CPI inflation was projected to remain above the 2% target until the end of the forecast period.

This is good news for

• Remortgaging Homeowners who need to remortgage as their initial rate ends.
• First Time Buyers trying to meet higher affordability requirements.
• Landlords hoping not to increase rents due to increased mortgage costs.

Inflation

With inflation currently at 1.7% and the Bank of England is working to maintain its 2% inflation target. CPI in September decreased to the 1.7%. It is expected to increase to around 2.5% by the end of the year.

Bank of England on Housing

There are signs that housing market activity is picking up…

Housing market activity appears to be recovering from the lows observed in 2023. Monthly mortgage approvals for house purchase have risen by around 50% since the start of 2023 and are now close to their average between 2014 and the start of the pandemic.

Intelligence from the Bank’s Agents suggests there is growing optimism among estate agents around the prospects for housing market activity in 2025, despite some reporting a brief lull in activity in the run-up to the Budget.

In line with the recovery in mortgage approvals, nominal house prices have continued to pick up. The ONS measure rose by 2.7% over the 12 months to August, and by 0.4% in real terms. That followed a 2.6% and 6.3% fall in nominal and real terms respectively over 2023.

The recovery in house prices partly reflects a waning drag from past interest rate rises, consistent with the impact of higher interest rates having materialised more quickly than in the past.

The recovery in housing market activity has led to a small turnaround in the growth rate of secured lending to households. Secured household lending growth remains weak in real terms, however, and has been negative since late 2021.

A continued pickup in housing market activity should lead to a strengthening in secured lending growth. Consistent with that, banks responding to the 2024 Q3 Credit Conditions Survey expected demand for secured credit to increase in 2024 Q4.

GDP grew by 0.5% in 2024 Q2, 0.2 percentage points below the projection in the August Report. The largest positive contributions were from business investment and government expenditure, partly offset by a contraction in housing investment.

Housing investment growth has been volatile so far in 2024, rising by 4.7% in 2024 Q1 before falling back by 2.1% in Q2. Housing investment has historically been sensitive to interest rates.

As the effects of higher interest rates on house prices continue to wane, and housing activity continues to pick up, housing investment is expected to strengthen. In the near term, housing investment is projected to fall by 2.1% in 2024 Q3 before growing by 0.8% in 2024 Q4.

Household net lending growth has been weaker over the past two years than at any time since 2011, consistent with weakness in housing market activity in 2022 and 2023. Subdued net lending growth has been driven in part by higher interest rates, which have incentivised households to pay down existing debt and discouraged additional lending.

The impact of interest rates on the economy is uncertain, but the recent pickup in housing market activity – reflecting the impact of lower rates – is expected to feed through to higher secured lending, which in turn is expected to boost consumption and reduce the household saving ratio.

Development of new buy-to-rent and student accommodation continues but volumes of new social housing remain down from last year. There is ongoing growth in repair, maintenance and improvements owing to office refurbishments and Housing Associations increasing maintenance.

Estate agents are slightly more positive about the housing market going into next year. Despite a temporary slowing in activity ahead of the Autumn Budget, most feel that the fundamentals will support growth into next year. Mortgage rates are falling, enquiries have picked up and there are more signs of modest house price growth in the low single digits.

Renting

Rental price inflation has slowed further with some instances of small decreases in rent. The market has reached the upper limit of affordability for prospective renters and, in some areas, supply has picked up after regulatory changes. Private rental supply remains constrained in Scotland as landlords look ahead to upcoming regulations.

See: MPC November 2024 Monetary Policy Report See: MPC November 2024 Policy Summary