A new era of financial and economic stability, falling mortgage rates and rental market reforms. What Rishi Sunak has in store for the housing market.

It’s been a political roller coaster over the last few months, accompanied by growing economic uncertainty for UK households at a time when the cost of living is having a growing impact on financial decisions.

So what does the new prime minister have at the top of his inbox when it comes to the housing market and supporting people with their home-related decisions?

Financial and economic stability

It is fair to say everyone is looking for more stability and calm.

The arrival of Rishi Sunak as the new prime minister seems to have gone down well in financial markets, supported by several big policy U-turns from the new Chancellor Jeremy Hunt last week.

The top priority for the new prime minister is how to get the UK’s finances in order to help bring down borrowing costs for business and households and to help tackle the cost of living squeeze.

The health of the housing market is inextricably linked to the health of the economy and in particular the cost of mortgages, which have shot up to average over 6% in recent weeks.

This has delivered a big hit to buying power for those looking to move home, especially when we’ve been used to sub 2% mortgage rates.

Mortgage rates will start to fall

The cost of borrowing for government and business has fallen in the last 2 weeks and is set to fall further in the weeks ahead, as markets react to the messaging from the Government about balancing the books.

Mortgage rates for new business are starting to fall but still remain well above where they started the year.

The outlook for interest and mortgage rates is still out of the Government’s hands.

We don’t know how much further central banks will have to increase base rates to calm inflation, which is adding to everyone’s cost of living and eroding the value of our incomes.

There is hope that we are approaching the end of interest rate increases, which is good news for savers after a barren decade of low returns on savings, but means buying a home has become more expensive.

It looks like mortgage rates will return to 4-5% in 2023. But anyone looking to buy a home needs to realise that we are not going back to the days of ultra cheap money.

Home ownership and house building

Both Labour and the Conservatives have stated policies to increase home ownership. But it’s hard to grow home ownership if we aren’t building more homes.

The appointment of Michael Gove back into the housing and the levelling up ministerial role is a signal that the 2019 manifesto commitment remains to boost jobs and investment right across England. This will, in turn, boost housing delivery.

Gove was also the minister who pushed through the industry solution to address the cladding problems for homeowners in tall residential buildings, removing a big area of uncertainty for consumers and lenders.

Building more homes is often a contentious topic for local residents, who fear extra demands on local services.

Comments on house building from the new prime minister in the summer leadership election suggest he sees the importance of making sure we build homes and the infrastructure to support them.

This would help to ease any extra pressure on local services.

Sunak said he favours “reforms to increase density in our inner-cities, investing in regenerating brownfield land across the country, and pursuing developments that have community support.”

Sticking to reforms for private renting?

There are also big reforms planned in the private rented sector in England, aimed at improving standards of accommodation and shifting the balance of the relationship between landlords and renters.

Again, these were promoted by Michael Gove when he was the housing minister earlier this year.

The rental market is particularly stretched at present, with a lack of new investment by landlords since big tax changes and increased regulation were introduced from 2016 onwards.

The rental market has stopped growing in size, yet the demand for renting is growing, compounded by the rising cost of buying a home.

Rents are rising fast – up 12% in the last year according to our latest index – adding to cost of living pressures.

The case for reform in the rental market is important but it needs to be balanced against how much this pushes landlords out of the market, eroding supply and choice for renters.

This hits those on the lowest incomes hardest and drives calls to increase housing benefit to reduce the risk of people falling into homelessness.

Plenty of work to do on housing

So there is plenty for the new prime minister to cover on the housing brief at a time of rising prices and rents but with the additional risks from higher borrowing costs.

The reality is that the government shouldn’t worry about the short term outlook for housing.

They need to focus on delivering long term stability that gives businesses and households a steady platform to make long term decisions.

The top priority is keeping the economy growing and borrowing costs affordable, while creating an attractive environment to ensure we get the right glow of new investment into growing and improving our ageing housing stock across all areas and housing tenures.

Key takeaways

  • Mortgage rates look set to return to 4-5% in 2023, but the days of ultra cheap mortgages are behind us
  • On house-building, Sunak says he favours “reforms to increase density in our inner-cities, investing in regenerating brownfield land across the country, and pursuing developments that have community support”
  • The rental market has stopped growing in size, yet the demand for renting is growing. The government needs to tread carefully with reforms to prevent more private landlords from leaving the sector