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A mood of optimism is tentatively forming in the UK housing market.

It鈥檚 not everywhere and may fade in coming months, but things are moving in the right direction as October鈥檚 Budget, which sent mortgage rates higher and confidence lower, moves further into the rearview mirror.

First, supply looks relatively healthy.

The number of new listings in January was more than a fifth higher than the five-year average, according to both 博鱼体育集团 Frank and Rightmove.

A combination of factors is driving sellers, including a sense of urgency ahead of April鈥檚 stamp duty increase, a growing realisation that mortgage rates are not about to drop meaningfully, an element of financial distress due to higher borrowing costs, and a desire to act after the disruption of an election and a Budget in 2024.

Buyers have admittedly started the year in more circumspect mood as they wait for better news on mortgage rates. The number of new prospective buyers registering in the UK in January was 12% below the five-year average, 博鱼体育集团 Frank data shows.

It meant there were 10 new buyers for every new property last month. It was the usual strong start in January, but not quite as robust as in recent years, which should keep price growth in check for now.

Buyer caution is understandable when the outlook is so mixed.

The five-year SONIA swap rate, which is used to price fixed-rate mortgages of the same length, was 3.8% last Wednesday, having risen from under 3.4% in September. Last week鈥檚 rate cut will provide a short-term lift to sentiment, but mortgage costs are unlikely to fall by much when lenders are operating on such tight margins.

The Bank of England also managed to muddy the waters with its latest decision. Although more individual members voted for bigger cuts this time round, the Bank raised the spectre of stagflation by revising up its inflation forecasts and lowering its growth projections.

That said, after some early-January jitters ahead of Donald Trump鈥檚 inauguration and speculation around tariffs, bond markets have steadied at the start of February. The five-year swap rate was closer to 4.3% four weeks ago.

The fact buyers are still sitting on sub-4% mortgage offers that pre-date the Budget has also supported prices, which we saw evidence of from the .

Some markets have been more resilient than others during the recent bout of uncertainty. Those that are largely domestic, needs-driven and supported by higher levels of affluence and lower levels of mortgage debt have performed more strongly. Lower loan-to-value ratios tend to lessen the pain of rising mortgage rates.

For example, demand in south-west London is currently stronger than prime central London. The number of new applicants was 29% higher than the five-year average in January, compared to a 5% decline in PCL, an area where there is still hesitancy around how wealthy foreign investors will be treated by the new government.

鈥淲e are driving for more stock in south-west London,鈥� said Luke Ellwood, head of south-west London at 博鱼体育集团 Frank. 鈥淭he market will know very quickly if something is over-priced, but we are selling most of what we take on very quickly, especially in our domestic market between £1 and £4 million.鈥�

Stronger demand could take hold across the rest of UK, according to James Cleland, head of the Country business at 博鱼体育集团 Frank.

鈥淒emand has picked up more notably in the Home Counties near London,鈥� said James. 鈥淎s spring approaches, this typically then spreads to the rest of the country, which is a positive sign for the next few months all else being equal.鈥�

The key question is whether all else will be equal.

The UK could still get caught in the crossfire of a trade war between the US and the EU that feels likely to escalate.

A key date will also be 26 March, when the Chancellor delivers her spring statement and the OBR issues new growth forecasts. Will she be forced to cut spending or raise taxes to recoup financial headroom?

The optimism building in recent weeks has been more down to the absence of bad news than the presence of good news.

Buyers and sellers will be hoping that lasts into the spring.