Want to buy property in the UK? Now could be the right time, experts say

Meanwhile, mortgage rates hit a 15-year high in Britain earlier this year, pushed upward by higher interest rates and the U.K. government’s shock policy moves in late 2022. The average rate for a 2-year fixed mortgage spiked as high as 6.86% in July and was around 6% at the time of writing, according to figures from data provider Moneyfacts.  

At first glance, neither renting nor buying a property in the U.K. looks particularly attractive right now. But according to Tom Bill, head of U.K. residential research at real estate company Knight Frank, the coming months could be a good time to enter the market.

“If you’re looking at what the Bank of England does, the best time arguably is now,” he told CNBC’s Silvia Amaro.

This is because the Bank of England is likely done hiking interest rates — which determine the mortgage rates for millions of homeowners in the U.K. And although speculation has now shifted to when rates will be cut, Bill says mortgage rates are unlikely to fall sharply: “We’re talking about small movements downwards.”

The Bank of England, like many central banks around the world, has been hiking interest rates in an effort to cool the economy. Recent data, including inflation figures, has suggested that elevated rates are having their desired effect in bringing down prices — raising expectations that the central bank could begin cutting interest rates in 2024.

Mortgage lenders are also keen to gain and maintain market share in what Bill says has been a “thin” year for the industry, adding downward pressure to mortgages.

Higher mortgage rates typically lead to a decline in house prices, and it’s a trend that has been reflected in the U.K., even though prices remain above pre-pandemic levels, according to Richard Donnell, executive director for research at property data firm Zoopla.

“Prices have fallen modestly by less than 5% with house prices still £40,000 higher than before the pandemic started in early 2020,” he told CNBC.

However, transactions have fallen by 23% this year, Donnell noted, and while this is not good news for the property market, it may be good for some buyers.

“The average sale agreed is at £18,000 less than the asking price, the highest discount for over 5 years.  This means it’s a good time to get into the market to negotiate harder on price with 40% more homes for sale than a year ago,” he said.

Knight Frank’s Bill suggests that the coming six months could be a good time to get on the property ladder.

“Sentiment has notably improved over the last few weeks, so I would say if you’re trying to time your purchase, and often people try and do get their timing correct, it feels like the next six months are going to be better than the last six months,” he said.

Prices could also continue to fall, as Donnell points out. “House prices are set to fall by another 2% over 2024 as pricing adjusts to weaker buying power even if mortgage rates fall back further,” he said.

There is one potential headwind for the sales market, however: the general election expected to take place next autumn in the U.K. Bill points out that property markets often slow in the lead-up to elections, especially where a leadership change is expected — as is currently the case in Britain.

Meanwhile, the rental market is expected to remain tight, with rents continuing to rise. Strength in the labor market, high levels of immigration and high mortgage rates “trapping would-be buyers” in rentals all play a role in this, according to Donnell.

“The supply/demand imbalance will remain into 2024 but demand will weaken as affordability pressures build,” he said. However, rents are still expected to increase by 4-5% next year, he said.

Bill noted that supply is beginning to pick up in some areas of the country, but that demand mostly still outweighs it. “It’s normalizing, but it hasn’t fully normalized yet.”