The UK property market has been incredibly volatile for both renters and those looking to buy a home. In 2022 and 2023, we saw rents skyrocket due to an imbalance between supply and demand, sparking intense competition for rental properties.

Earlier this year, mortgage rates in the UK reached their highest levels in 15 years, driven by increased interest rates and unexpected policy changes by the UK government. The average rate for a 2-year fixed mortgage peaked at 6.86% in July and hovered around 6% recently, as reported by Moneyfacts.

Buying vs. Renting, A Tough Decision

With high rents and steep mortgage rates, deciding whether to rent or buy in the UK seems daunting. However, Tom Bill from Knight Frank, interviewed by CNBC, believes the upcoming months might offer a favorable opportunity for entering the market.

The Bank of England’s Influence

The Bank of England, having raised interest rates to temper the economy, might be done with its hikes. This impacts mortgage rates for countless homeowners. While there’s speculation about rate cuts, Bill anticipates only minor decreases in mortgage rates.

Inflation and Interest Rates

Data, including inflation figures, indicates that high rates are effectively reducing prices. This has led to expectations that the central bank could start lowering interest rates in 2024.

Housing Market Sentiment Improving

Mortgage lenders, eager to secure and maintain their market share after a challenging year, might push mortgage rates down. Despite higher mortgage rates causing a drop in house prices, they remain above pre-pandemic levels, as noted by Richard Donnell from Zoopla.

Property Prices and Transactions

House prices have slightly decreased, yet are still £40,000 higher than before the pandemic. However, property transactions have dropped by 23% this year. For buyers, this could be good news. The average sale is now £18,000 below asking price, the largest discount in over five years.

The Next Six Months – An Opportune Time

Bill from Knight Frank suggests the next six months could be ideal for getting onto the property ladder, with market sentiment improving recently.

Donnell predicts a further 2% drop in house prices in 2024, as buying power weakens even if mortgage rates decline.

A potential challenge is the upcoming general election in the UK. Property markets often slow down before elections, particularly when a change in leadership is anticipated.

Rental Market Still Tight

The rental market is expected to remain competitive, with rents likely to continue rising due to factors like strong labor market, high immigration, and high mortgage rates keeping potential buyers in rentals.

While rental supply is picking up in some areas, demand still generally exceeds supply. According to Donnell, this imbalance will persist into 2024, though demand may lessen as affordability issues increase.