Expectations rise: An advertising banner at a housing development in Liverpool. A long-term shortage of rental homes still looms, but it looks like landlords are taking advantage of cheaper available mortgage rates, agents say. — Reuters
LONDON: UK real estate agents grew more optimistic in December as easing borrowing costs and an end to budget uncertainty lifted some of the gloom that hung over the housing market for much of last year.
The Royal Institution of Chartered Surveyors (RICS) said its gauge of expected home sales surged to 22, up from minus four the month before and the highest since October 2024.
The reading indicates that more agents forecast an increase than a decline over the next three months. Optimism for the year ahead also became more widespread.
The findings point to a better year for the housing market after higher transaction costs, fears of job losses and worries of potential tax rises in the run-up to the Nov 26 budget kept aspiring buyers on the sidelines.
Agents also expect further interest rate cuts from the Bank of England (BoE) to help boost the mood.
“There are tentative signs of a shift in sentiment beneath the surface,” said Tarrant Parsons, head of market research and analytics at RICS.
“The key test for 2026 will be whether borrowing costs ease on a sustained basis. If so, this could provide the catalyst needed to drive a recovery in buyer demand.”
RICS’ indicators of buyer demand and agreed sales stayed in negative territory in December, though both edged higher on the month, signalling that the downturn may be easing.
House prices continued to slide in December, with agents in London reporting the most widespread declines.
However, the national outlook for prices is improving. RICS’ figures suggested prices will flatten over the next three months, while year-ahead expectations of a rise are becoming more common.
The budget brought relief for many as Chancellor of the Exchequer Rachel Reeves delayed tax rises on households until later in the parliament and announced a raft of measures to help with the cost of living.
Meanwhile, a price war between lenders continued through December and into the new year, easing affordability strains in the housing market.
The average two-year fixed rate mortgage fell below 4.8% on Wednesday, down from levels above 5% in August, according to data from Moneyfacts.
Hanging over prospects for the property market, however, are a slow-growing economy and rising unemployment.
Concerns about the labour market have prompted traders to boost bets on BoE rate cuts, with money markets now implying around two more quarter-point reductions by the end of the year.
In response, yields on benchmark government bonds yesterday hit their lowest since December 2024.
A separate report from property website Rightmove found that the lettings market is also stabilising thanks to supply shortages easing, with rent prices expected to increase just 2% in 2026.
While still well below where it was a decade ago, the number of available homes has increased 9% year-on-year.
“There is still a long-term shortage of available rental homes, but it looks like landlords are taking advantage of cheaper available mortgage rates, and more available homes will benefit tenants,” Rightmove’s property expert Colleen Babcock said.
Outside of London, rents rose just 2.2% year-on-year in the fourth quarter, the weakest growth rate at the end of a year since 2018.
In the capital, rents all but stagnated on an annual basis. — Bloomberg
