There was near unanimity among the members of the Bank of England’s MPC in their decision to hold the Bank base rate at 3.75% last week. However, there was much less certainty about the outlook for the economy. Given the unpredictable nature of current geopolitics, the accompanying Monetary Policy Report set out three separate scenarios for inflation and GDP growth.
These came two days after our prime housing market webinar, which seeks to unpick what the current uncertainty means for the top end of the market. Fortunately, everything we said in that webinar still stands. The webinar recording is available to watch in a presentation and Q&A format.
Back to the economics
The most benign of Bank of England scenarios assume that energy shock resulting from the war in Iran is short lived, to the extent that CPI inflation (currently running to 3.3%) tops out at 3.6% at the end of this year, with the change in annual GDP bottoming out at +0.5%.
Somewhat comfortingly, the second, slightly less benign scenario is not all that different.
But the third scenario, which assumes energy prices remain high for “a prolonged period” resulting in “more persistent inflation”, is somewhat more ugly. In this scenario, inflation hits 6.1% and takes much longer to be brought back to heel, requiring the Bank base rate to be increased to 5.25% back to its post-Trussonomics peak.
Thankfully, as things stand the mortgage markets suggest this is an outlier. The cost of two and five year fixed rate mortgages have risen but are some way below the highs of late 2022 and mid-2023.
Impact on the market
And, on the face of it, a number of the housing market metrics have remained surprisingly resilient.
Last week the Nationwide reported that annual house price growth stood at 3.0% in the year to the end of April. That isn’t exactly representative of a market that is going gangbusters, but neither is it one in freefall. Added to this, mortgage approvals picked up in March according to the Bank of England.
Both measures reflect the fact that buyers who obtained a mortgage offer before the end of February are keen to lock into yesterday’s rates, which look good value today.
And so it may take some time for the impact on buyer confidence, picked up in last month’s RICS Residential Market Survey, to feed through into such numbers.
For now, even if the seam of demand has become thinner, deals continue to be done. TwentyCi data suggests that market activity in April was broadly on a par with the same month last year whether across the market as a whole or over £1m.
Rentals reformed
The rental market has had somewhat longer to respond to change that culminated in the Renters’ Rights Act becoming law last Friday. Its forerunner the Renters’ Reform Bill was first laid before parliament on 17th May 2023, after Scotland had made changes as far back as December 2017.
You can read more about what we think this will mean for the prime rental markets, as well as the reflections from Faisal Choudhry on what this has meant for the rental market north of the border in Scotland.
There is also further insight into landlords bringing stock to the sales market in our latest press release.
Articles from across Savills
Webinar: Latest update on the UK’s prime property market
Watch our latest webinar where our experts discuss the UK’s prime property market and how recent events are shaping buyer and seller sentiment this spring.
Prime UK Residential Spring / Summer 2026
Discover our latest Prime UK Residential report, examining how today’s shifting economic and regulatory landscape is shaping the market.
Explore our latest residential research, which shares insight and analysis into the data and trends currently shaping the UK property market.