High street lenders get competitive
Making sense of the latest trends in property and economics from around the globe
3 minutes to read
The UK's annual rate of inflation fell to 2.6% in March, down from 2.8% the previous month and below the 2.7% that economists had been expecting. Growth in services prices, a key source of angst at the Bank of England, fell to 4.7%, from 5%.
This will reaffirm the Bank of England's view that the more persistent aspects of inflation are on the right track. Policymakers are sanguine about the fact that annual inflation will rise to nearly 4% later this year following the removal of the energy price cap in July.
Crucially for UK mortgage borrowers, the reading will reinforce the market's view that the BoE will vote to cut the base rate three times this year, up from an expectation of just two cuts a month ago.
Borrowing costs
The evolving outlook has reignited competition among high street lenders. Last week, Barclays became the first major lender to trim fixed mortgage rates below 4% since 'Liberation Day'. Santander followed this week by reducing its top offer to 3.97% for borrowers putting down a 40% deposit. HSBC also unveiled cuts across its product suite, while Halifax revamped its affordability criteria to attract a broader pool of borrowers.
This will help support a market showing signs of fragility. According to the latest RICS Residential Market Survey, new buyer enquiries fell sharply in March, posting their weakest reading since September 2023. Agreed sales fell for a third consecutive month, and short-term expectations for both prices and volumes have turned more cautious.
Some of the recent weakness can be attributed to distortions caused by the stamp duty deadline - see Tom Bill’s analysis from Monday. Indeed, agents remain relatively optimistic about the year ahead, with a net balance of +39% of RICS respondents anticipating price growth over the next 12 months.
Fairly normal
An increase in supply relative to demand put downward pressure on the value of the UK's country homes during Q1. The number of properties coming to the market increased by 3% year-on-year as the number of new prospective buyers fell by 7%.
As a result, Knight Frank’s Country House Index recorded a 0.3% decline, taking the annual fall in prices to 1.6%—the steepest year-on-year drop since Q2 2024. Pricing remains critical in this environment, says James Cleland, head of Knight Frank’s Country business:
“Under £3 million, the market has been behaving in a fairly normal way... But this is not a market to be ambitious and buyers are only showing an interest in competitively-priced stock. You can sell but only if you are prepared to be pragmatic.”
Core money
The UK's Build to Rent sector has begun 2025 in familiar fashion. Investment volumes hit £1.1 billion during the first quarter, the seventh consecutive year that Q1 deals have topped the billion-pound mark. That’s down a little from the £1.2 billion recorded during the same period last year, but still marks a robust start given the broader investment climate.
As has been the case in previous quarters, Single Family Housing (SFH) performed strongly, accounting for 50% of the total number of deals completed.
Momentum looks set to continue into 2025. Knight Frank alone is currently advising on a further £1.7 billion of assets that are expected to transact this year.
As the debt landscape improves, we expect to see more core and core+ money coming back to the market. Knight Frank’s survey of 60 of the largest investors in the UK Living Sectors found that nearly 70% intend to increase allocations to core and core+ strategies over the coming 12 months.
In other news...
Bonuses surge for top traders at EU investment firms after cap is lifted (FT), Dollar bearishness reaches highest level since 2006, says survey (FT), UBS downgrades China outlook following tariffs (Bloomberg), and finally, UK asking prices hit a fresh high (Times).