In July, UK house prices rose by 0.6%, surpassing the expected 0.3% increase. The average home price reached £272,664, as activity stabilized after the end of the stamp duty holiday. Housing affordability in the UK is slowly improving. This is due to strong income growth, slower house price increases, and slightly lower mortgage rates. The average home price is now 5.75 times the average income, down from a record high of 6.9 in 2022. This is the lowest ratio in over ten years, making it easier for buyers to save for a deposit and benefiting from more available high loan-to-value mortgages.

Economic Resilience and Interest Rate Outlook

The unexpected rise in July’s house prices challenges the idea that the UK economy is cooling rapidly. The 0.6% increase, compared to the 0.3% forecast, indicates that consumers are more resilient than we thought. This may lead us to rethink predictions about a soon-to-come Bank of England rate cut. Markets are quickly adjusting their expectations, showing less likelihood of a rate cut this year. This is evident in the selling pressure on SONIA futures. Since June’s Consumer Price Index (CPI) remained high at 2.8%, this housing data gives the Bank of England more reasons to keep its cautious approach from the July meeting. Traders might want to prepare for UK interest rates to stay higher for longer than previously expected.

Implications for Currency and Equity Markets

This change in rate expectations is boosting the British pound. We should consider buying GBP, especially against currencies where central banks are following a more lenient approach. Call options on GBP/USD could be a smart way to capitalize on this potential upward trend in the coming weeks. For equities, we are looking at call options on UK housebuilders and major mortgage lenders. After their struggles during the 2023-2024 housing slump, better affordability and higher transaction volumes offer significant positive momentum. The data showing a low price-to-income ratio also supports a more solid recovery for these stocks. Create your live VT Markets account and start trading now.

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