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What is happening to the UK homebuying and rental markets?

For Joe, a youth worker in his 20s, soaring UK rents have made a living and working in London precarious.

“Our rent costs 50% of our combined wage before bills,” says Joe, who shares with his partner, a receptionist. They pay £1,450 monthly for a “very small” one-bedroom flat. The couple’s tenancy agreement expired recently, and they now have a casual agreement with the landlord to stay in the flat.

“If we were evicted, we’d be unable to afford a similar property. We would have to move back in with our parents. I’d have to leave my job, as my parents live outside commuting distance,” he says.

Although rents are rising rapidly, with house prices starting to fall, the Bank of England raising interest rates to levels last seen in 2008 and Britain facing a long recession, signs increasingly suggest the housing market has peaked.

The Bank’s chief economist, Huw Pill, warned last week that there was “still more to do” to tackle soaring, double-digit inflation, despite the growing risks of a long recession. The central bank lifted its base rate by 0.75 percentage points to 3% in early November, the biggest single rise in borrowing costs since 1989. On average, it will add about £3,000 a year to mortgage bills for households set to renew their mortgages. The money markets are predicting that interest rates will rise to 4.5% by May and stay around that level for the rest of 2023, although expectations for peak rates have eased since the departure of Liz Truss and Kwasi Kwarteng. The Bank’s governor, Andrew Bailey, has suggested that the rate peak may be lower than that.

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