The housing market loses momentum

UK property market activity is wilting in the face of elevated mortgage rates and domestic political volatility.

Lenders granted 56,200 mortgages to homebuyers during May, well down from the 66,000 registered in April and the lowest level since December 2023, the Bank of England (BoE) reported this week. Meanwhile, inquiries to estate agents via Zoopla fell 15% during the past four weeks compared to the same period a year earlier, according to data shared with the Times. Agreed sales were down 7%. Three out of five homes listed since January are yet to find a buyer.

Treading carefully

This could be as bad as it gets, given the figures cover the period during which mortgage rates were close to their peaks and political uncertainty was rising sharply. Oil prices have since eased to pre-war levels and investors have pared bets on interest rate hikes from the BoE, prompting mortgage rates to ease. Meanwhile, Andy Burnham remains the only declared candidate to take over from Keir Starmer, which has prevented a leadership campaign that could have spooked gilt investors.

Still, Burnham must tread carefully. Investors hold short positions in the pound worth US$8.72 billion, according to weekly data from the Commodity Futures Trading Commission flagged by Reuters. That’s the largest since May 2015.

House prices have held up in the face of falling transactions, Nationwide reported this morning. Annual house price growth picked up to 2.2% in June, from 1.7% in May, although prices were broadly flat in month-on-month terms after taking account of seasonal effects.

The poster child

The spectre of a government bond market rout doesn’t just hang over the UK, though the crisis prompted by Liz Truss has made it the poster child for the consequences of losing investors’ confidence.

The Bank for International Settlements (BIS), also known as the central bank of central banks, published a policy paper this week warning of the rising risk of bond market dysfunction. The Times write-up makes for easier reading. Investors have been selling the sovereign bonds of the world’s seven largest economies at the fastest rate since the Global Financial Crisis due to the prospect of enduring higher inflation, elevated interest rates and concerns over the sustainability of public finances. The increased presence of hedge funds in these markets, who use leverage to buy government bonds, has made markets particularly vulnerable to fire sales.

Successive governments have been aware of these risks but have lacked the political nouse to tackle them. Starmer’s failure to reform welfare was emblematic of how difficult leaders find it to get public spending in check and instead rely on a patchwork of tax rises. Burnham’s own economic advisors are hoping he may fare better. Lord O’Neill of Gatley, a former Goldman Sachs chief economist who is advising Burnham told Sky News on Tuesday that tackling rising government spending should be the priority.

“We can’t just keep avoiding what are seen as difficult choices, and having back-door ways of raising tax,” he said, according to the Times. “If we have proper bold leadership, that makes it clear that they’re going to do things about these escalating costs, their reward will be a very strong positive response to the financial markets, which in itself would enthuse business and probably consumers.”

Overseas demand

The composition of overseas buyers in Europe’s prime residential markets is shifting as UK and US buyers broaden their horizons. European buyers (excluding the UK) remain the largest group of cross-border buyers, but their share of weighted overseas demand edged down to 40% during the first half of 2026, down from 45% during the previous half year, according to Knight Frank figures.

UK buyers – who are broadening their footprint across Europe’s prime markets, expanding their presence in Madrid, Ibiza and Tuscany, while maintaining leading positions across multiple markets including Monaco and the French Riviera – accounted for a third of demand. US buyers – who are expanding their footprint across key lifestyle and urban destinations, gaining ground in markets such as Milan, Ibiza and the Algarve – now account for more than a fifth.

Data comparing price movements across currencies demonstrates how exchange rate shifts can materially alter perceived value. Taking Milan as an example, prices are up around 36% for a euro-based buyer over this period. However, once currency effects are considered, the increase is lower for international buyers, approximately 32% for UK buyers, 31% for US buyers, and just 17% for Swiss buyers.

The same pattern holds across multiple markets. Price growth in locations such as Madrid (c.29% in euro terms), Lisbon (c.21%) and Paris (c.18%) looks considerably different when viewed through the lens of foreign currencies, particularly for buyers benefiting from stronger exchange rates.

In other news…

How the great wealth transfer is rattling Wall Street (FT), Barclays buys Canary Wharf HQ for £750mn (FT), Number of billionaires jumps 13 per cent thanks to AI boom (Times), and finally, UK housebuilders face potential lawsuit over alleged anti-competitive conduct (Reuters).