Is the UK property market starting to bottom out?

Despite the continued doom and gloom as regards the UK economy there are slowly emerging signs that we may just be nearing the bottom of the UK property market decline. While it would be foolish to suggest that UK property prices will bounce substantially when the market does turn, there are significantly improved hopes that the UK market may well be approaching a turning point.

A number of reports with regards to property prices and liquidity in the mortgage market have given investors renewed hope that the sector may well begin to stabilise and hopefully form a stronger base for future growth. There are many factors to consider which include:-

UK base rates

Over the last 12 months we have seen UK base rates fall from 5% down to the current level of 0.5% with very little impact on the property market as a whole. However, the fact that the Bank of England this week suggested that UK base rates are unlikely to fall below 0.5% come could prompt a turnaround in the mortgage market, with rates possibly set to stabilise. As interest rates were falling it would appear that many potential investors looking at UK property were happy to wait and see how far mortgage rates might fall.

Now that the Bank of England has effectively confirmed that UK base rates are highly unlikely to fall any further we have seen a significant shift in the UK mortgage market. Recent data indicates that the average two-year fixed-rate mortgage and the standard variable rate mortgage are both sitting at just over 4%, which is a significant shift downwards since last month alone.  Is this the bottom of the cycle?

Increased liquidity in the UK mortgage market

Liquidity has always been a significant issue in the UK mortgage market having fallen substantially from record highs just 18 months ago. In what many believe became a case of “what comes first, the chicken or the egg” there was some debate as to whether liquidity would filter through to the market before demand improved or whether demand would be needed to increase liquidity. However, this decision was effectively taken away from the “free market” with the government taking control of Northern Rock, Lloyds Bank and Royal Bank of Scotland via substantial taxpayer funded share acquisitions.

It now appears as though the government has “come good” on promises some months ago to “lean” on publicly funded and publicly supported banking operations, ensuring that they increase their own mortgage funding available to the market. The cumulative impact of increased liquidity amongst the three banks mentioned above has seen a significant injection of competition in the market place which has brought other banking operations back into the mix. For the first time for some months we are now seeing competition in the mortgage sector as oppose to investors literally taking the first mortgage which became available, in the knowledge that funding was difficult to find.

Toxic debt insurance plan

There is no doubt that toxic debt, and potential toxic debt, has hampered recovery in the UK banking sector for some time. The much criticised toxic debt insurance plan is now playing a central part in the stabilisation of banking balance sheets around the UK. While the likes of Barclays Bank has managed to evade the grasp of the UK government, the vast majority of UK banks have been forced to take part in the toxic debt insurance plan which offers the chance to exchange potentially toxic debts for short-term liquidity.

It is also the opportunity to rid balance sheets of potentially damaging assets which has also allowed more and more UK banks to increase their liquidity to various areas of the UK market. While it would be foolish to suggest that liquidity is likely to return to levels seen just 18 months ago, in the short term, there is no doubt that the tide has certainly turned. All we need now is a reduction in deposits demanded by UK banks, which should increase demand and also bring first-time buyers back into the fray.

House price reports

While a Nationwide report for March highlighted a rise in UK property prices we then saw a report from Halifax showing a significant fall for the same period. This particular phenomenon has confused many in the market place with some suggesting that increased volatility could be to blame for the significant difference in the reports. However, this was the first time for many many months that anybody had even contemplated an increase in property prices, with some investors taking heart.

Even though it would be foolish to base any forecasts of a recovery in the UK property market upon one report, all eyes are on the property price reports due out for April and May which should confirm any potential change in the direction of the UK property market. However, inadvertently it would appear that the Nationwide report has injected a little more confidence into the market place with potential buyers increasing in numbers.

The outlook for the UK property market

The substantial fall in the value of UK property has been ongoing for some time although along the way we have seen a number of “false dawns” which have given false hope. However, when you consider the various factors which appear to be coming into play now, which include liquidity and pricing changes, there could be a basis for at least a stabilisation of the UK property market.


Confidence has been, and always will be, one of the major factors in the eventual recovery of the UK property market. However, when you consider the significant reduction in mortgage rates, indications that UK base rates have bottomed out and increased mortgage liquidity these are all elements which will at some point inject more confidence into the market.

It would be foolish to suggest that the UK property market will bounce significantly in the short to medium term but the fact that we could soon be talking about property price increases, as oppose to continued falls, is something which will not go unnoticed. All eyes are on transaction numbers and property prices in the short to medium term which will indicate whether confidence and investors are returning to the market. Caution has been a watchword for some time now but slowly there are signs of hope in what has for many months been a period of darkness.

Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>