Markets pricing in further base rate cuts this year will “underpin demand in the UK housing market this spring irrespective of whether the cuts happen,” says Knight Frank.
This expected fall in the cost of money has led the property agent to push up its house price forecast by 1%.
Knight Frank head of UK residential Research Tom Bill’s comments come after the Bank for England made its second quarter-point reduction of the year, bringing interest rates down to 4.25%, following trade uncertainty.
Bill says: “Six months ago, financial markets were pricing in the equivalent of less than one cut between now and December.
“Easing inflation concerns, weaker economic data and tariff turbulence have improved the chances of lower rates.”
Money markets now forecast “between two and three further cuts this year,” says Bill.
He expects the housing market to remain buoyant even if “inflation eventually puts upward pressure on borrowing costs again”.
Last week the Bank forecast that energy prices “are still likely” to drive up inflation to 3.5% in the third quarter of the year, before “falling back thereafter”.
The agent has revised up its estimate for UK prices to 3.5% from 2.5% this year “due to the improving rate landscape”.
The figures have also risen edged up over the following three years, taking the cumulative five-year total for house price rises to 22.8% from 19.3%.
Last week, average house prices lifted by 0.3% in April to £297,781 compared to £296,899 the month before, according to the Halifax house price index.
The lender added that the annual rate of growth hit the highest level so far this year at 3.2% in April from 2.9% in March.
Knight Frank’s rental forecasts are “largely unchanged”, but the agency has revised up our expectations for the UK and Greater London “marginally” due to the ongoing supply squeeze.
The firm expects cumulative growth of 18.8% in the UK, from 17.6% in November, and 17.1% in London, up from 15.3%, over the same period.
Bill says: “We expect rental demand to be resilient over the next five years, due to affordability pressures in the sales market which will only intensify as mortgage rates normalise from the low base of recent years.”
