UK government bond yields rise amid fears over US-Iran peace talks
Yields on UK government bonds increased following a slight rise in oil prices, driven by concerns that peace negotiations between the US and Iran to end the ongoing four-month conflict have stalled.
The yield on 10-year gilts rose by up to 6 basis points to 4.818%, while the 30-year gilt climbed 6 basis points to 5.539%, both reaching their highest levels since 22 June.
Market investors currently assign an 85% probability to a quarter-point interest rate increase from the Bank of England before the end of the year.
Brent crude, the global oil benchmark, increased slightly to $73.53 per barrel earlier in the day but was trading at $72.77 per barrel, down 0.25% on the day.
Shares of some of the UK’s largest housebuilders declined for a second consecutive day after analysts at Kepler Cheuvreux downgraded certain target prices. Additionally, a class action lawsuit alleging price collusion was filed against seven companies on Tuesday.
On the FTSE 100 index, Barratt and Redrow shares fell by 1.5%, while on the FTSE 250, Berkeley Group shares dropped 1.9%.
UK house price growth stalled in June, according to Nationwide Building Society, as rising mortgage rates linked to the Iran conflict discouraged homebuyers. Estate agents have also warned of a potential summer slowdown.
"There is the familiar pre-summer push from families wanting to be settled before the new school year, but the mood is steady and selective rather than booming or stalling. We expect a quieter, price-sensitive summer, with activity firming again in the autumn once buyers have more clarity on rates and the geopolitical noise has died down," said Amy Reynolds, head of sales at the London estate agency Antony Roberts.
'Housing market remains weak, but falling mortgage rates pave way for recovery'
Ashley Webb, senior UK economist at Capital Economics, noted that the three-month growth rate slowed from 1.3% in May to 0.7% in June. While prices were flat month-on-month in June, he anticipates a rise in the coming months as mortgage rates ease, with significant house price declines unlikely.
"The stagnation in the Nationwide measure of house prices in June shows that the rise in mortgage rates triggered by the Iran war continues to weigh on the housing market. But if the recent fall back in swap rates, and therefore mortgage rates, is sustained, we expect house price growth to pick up again later this year.
We suspect house prices will do little more than flatline over the next few months, or perhaps even fall a bit, as the drag on housing demand from the previous jump in mortgage rates triggered by the Iran war continues to be felt.
But house prices will probably start to rise again later this year as mortgage rates continue to fall back. The two-year quoted mortgage rate fell from 5.1% in April to 4.9% in May and the recent decline in the 2-year swap rate suggests it will fall to around 4.5% in June.
The risk, though, is that the improvement in prices we expect doesn’t happen in time to meet our forecast that prices will rise by 1.5% in the year to the fourth quarter of 2026. Indeed, May’s slump in mortgage approvals is consistent with the annual growth rate of house prices slowing to just above 1.0% in six months’ time. Either way, the coming falls in mortgage rates make us more confident in our view that big outright falls in nominal house prices are not on the cards."
Jonathan Hopper, chief executive of Garrington Property Finders, added:
"The dust is settling but that doesn’t mean it’s back to business as usual. Nationwide’s data shows that at a national level, prices flatlined between May and June.
The regional data reveals which areas have got back into their stride and which have not.
Northern England, Scotland and Wales all saw their annual pace of growth improve during the last three months. The West Midlands saw the biggest turnaround in fortunes between the first and second quarters of the year, with annual price growth leaping from zero to 3.2%.
The North-South divide continues to grow and could be turbocharged by a prime minister Burnham. A huge injection of government spending into the north could create a Burnham bounce that accelerates northern price growth further.
Meanwhile Nationwide’s data offers some modest good news for central London, where the prolonged slide in average prices is over. Nevertheless the capital’s malaise has now spread to outer boroughs and the south-east commuter belt, where a glut of supply is holding down prices and allowing buyers to be choosy.
As a result, even in highly desirable areas buyers are often able to demand – and get – significant price reductions; while those who are not convinced that a home is 100% right for them won’t hesitate to walk away.
This is due to three factors – elevated interest rates, buyer caution and buyers’ sense that they have time and choice on their side."
Hopper also noted that while house price growth in the north outpaces London and the south, property values remain significantly higher in the capital and southern England. The average price in London is nearly £541,000, more than double that of the North West (£231,415) and the North (£173,756). The South West averages £310,429, and the South East £341,175.
Regarding mortgage rates, Hopper said:
"While mortgage interest rates have eased in recent weeks, and there are encouraging signs that they may tick down further in coming months, the extra cost of borrowing is still a barrier for mortgage-dependent buyers.
The abundance of choice and lower purchase prices is finally tempting cautious buyers back to the market, but the road back to normality will be long and the prospect of major property tax changes under Britain’s latest prime minister is a dark cloud for a market still craving clarity and confidence."
Call to suspend new EU border system in peak holiday period as planes leave half full
Airlines and airports have urged the suspension of the new EU biometric border check system during the peak summer holiday period, citing concerns that some flights are departing with many empty seats and passengers face queues of up to five hours.
In a letter addressed to Ursula von der Leyen, president of the European Commission, industry groups requested an option to suspend checks under the system during the busiest months due to fears that the situation could deteriorate further.
ACI Europe, representing airports, along with Airlines 4 Europe and IATA, representing airlines, warned that the summer season will exacerbate an already challenging situation for passengers.
"Passengers have already been forced to queue for extended periods outside terminal buildings and on exposed aprons because border control facilities cannot process arrivals quickly enough. Airlines face half-empty planes at gate closing time, while passengers are stuck in border control queues."
Some flights have experienced delayed departures while waiting for passengers.
The groups have called on the European Commission to permit airports to "completely suspend" checks "whenever passenger volumes exceed the operational capacity of border control facilities" during July and August.
Anthony Codling, housing analyst at RBC Capital Markets, commented on the UK housing market:
"The UK housing market is proving to be a study in resilience rather than exuberance. The average price of a home dipped £540 in June from May but rose almost £6,000 year on year.
The average UK home now costs £277,484, a market that is moving sideways more than it is marching forward. The headline number tells one story, but the regional picture tells a more interesting one: Northern Ireland is doing its own thing entirely, running nearly four times hotter than the national average, while much of southern England is essentially flatlining.
Mortgage rates remain the stubborn gatekeeper to a more meaningful recovery, with affordability still stretched by historical standards, and the Bank of England’s cautious approach to rate cuts keeping buyers in a holding pattern.
The good news is that all 13 regions are now in positive annual growth territory, which is no small feat. The bad news is that for housebuilders hoping for a demand surge to justify a bullish volume outlook, this is a market that remains more tortoise than hare."
Introduction
Good morning, and welcome to our rolling coverage of business, financial markets, and the global economy.
UK house prices were flat in June as the market weakened amid the Iran conflict, which dampened consumer confidence.
The average home price was £277,484 in June, nearly unchanged from £278,024 in May, according to Nationwide Building Society’s monthly survey. This zero change was anticipated by economists, following a 0.6% monthly decline in May.
Compared with June last year, property values increased by 2.2%, up from 1.7% in May.
Robert Gardner, Nationwide’s chief economist, stated:
"It is not surprising that the market has softened a little in recent months, given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market interest rates. Indeed, consumer confidence and measures of housing sentiment have weakened, and mortgage approvals fell noticeably in May."
Nationwide also released regional data for the second quarter.
House prices rose fastest in Northern Ireland between April and June, although the annual growth rate slowed to 8.6% from 9.5%, bringing the average price to £226,699. The annual growth rate was 3.9% in the North West and Northern England, and 3.5% in Scotland and Wales.
In London, prices increased at an annual rate of 1.6%, down from 1.7% in May, with the average property value at £540,903.
Gardner noted that the mortgage payment on a typical first-time buyer property in Northern Ireland now represents 31% of an average earner’s take-home pay, up from 24% in the second quarter of 2022, though still below the UK average of 33%. Additionally, the price of a typical home in Northern Ireland is approximately 80% of the UK average price, up from 70% earlier in 2024, but well below the 2007 peak of 125%.
"While geopolitical tensions remain high, the signing of a memorandum of understanding between Iran and the US helped push oil prices back towards the levels prevailing before the conflict began.
If the energy shock continues to subside, the Bank of England may not need to raise interest rates, or at least by less than had previously been anticipated – a view reinforced by the fact that UK inflation has also been lower than expected in recent months.
In recent weeks a shift in market expectations for the future path of Bank Rate has helped to bring down the market interest rates which underpin fixed-rate mortgage pricing.
If maintained, these trends will help to restore household confidence and ease affordability constraints, paving the way for a recovery in housing market activity in the coming quarters, providing that domestic political uncertainty does not adversely impact sentiment."
The government’s new energy price cap took effect today. There are warnings that millions of households in Great Britain will be pushed into fuel poverty after months of volatility in global gas markets, as energy bills rise by more than £220 annually, according to energy correspondent Jillian Ambrose.
With the cap on gas and electricity rates rising to the equivalent of £1,862 per year, the number of households spending more than 10% of their income on energy bills is expected to increase to 13.5 million from nearly 11.3 million in April, according to fuel poverty campaigners.
Using updated calculations that assume lower energy consumption, the regulator estimates the average UK household will pay £1,663 annually from July.
The End Fuel Poverty Coalition warned that in four years, nearly 5.5 million homes could face energy bills equating to about 20% of their income, up sharply from 4.3 million in April 2024. These figures are based on research by the University of York.
Upcoming Economic Events
- 10am BST: Eurozone inflation for June (flash)
- 2pm BST: Bank of England governor Andrew Bailey, ECB president Christine Lagarde, US Federal Reserve chief Kevin Warsh, and Bank of Canada governor Tiff Macklem speak at ECB panel in Sintra, Portugal
- 3pm BST: US ISM manufacturing PMI for June
