Mortgage Rates Increase Resulting in Stagnant House Prices
The stability of interest rates has increased the confidence of homebuyers, even though prices remain higher than they were a few years ago.
In April, house prices stayed constant with a marginal monthly increase of 0.1 percent and an annual growth of 1.1 percent. The stabilization was attributed to weaker price growth during the same period last year in the Halifax House Price Index.
“The average property price is now £288,949, up from £287,244 at the beginning of the year. Despite monthly fluctuations, the reality is that average house prices have mostly leveled off in the early part of 2024,” stated Amanda Bryden, head of mortgages at Halifax.
In this era of higher interest rates, the UK housing market is gradually gaining momentum.
Since August 2023, the Bank of England has maintained the interest rate at 5.25 percent.
“Although borrowing costs are higher than in previous years, the stability of rates has instilled confidence in homebuyers. Mortgage applications have increased this year, with the highest number of mortgage approvals in 18 months across the industry,” said Ms. Bryden.
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The Monetary Policy Committee (MPC) is expected to decide on the new rate soon, with predictions leaning towards maintaining the rate at 5.25 percent or a slight decrease due to slower inflation.
However, the BoE has expressed the need for sustainable evidence of inflation easing before considering lowering interest rates.
Anticipating the MPC’s decision, Halifax noted a gradual increase in mortgage rates in recent weeks. New buyers and those with fixed-term mortgage deals might find borrowing costs challenging, the lender added.
Affordability Constraints
Property prices are projected to rise modestly throughout the year. If the BoE gradually reduces interest rates, mortgage costs are expected to decrease, providing relief to buyers, according to Ms. Bryden.
In their revised five-year forecast for UK house prices, Savills highlighted lower mortgage costs, which are now more stable.
They anticipate a 2.5 percent growth in house prices this year, down from the initial 3 percent forecast in early November, attributed to reduced mortgage debt costs. Savills also revised their estimation for a 21.6 percent price increase by the end of 2028 from the earlier 17.9 percent projection.
Major UK mortgage lenders have been reducing fixed-rate deals since the beginning of the year, amidst an ongoing mortgage price competition.
Lucian Cook, head of residential research at Savills, mentioned that the competitiveness of the mortgage market has led to lenders incorporating potential rate cuts, boosting buyer confidence and prices.
Buyer sentiment is expected to improve in the next few years with a stronger economy and consistent interest rate cuts, as per Savills.
However, towards the end of the five-year period, affordability issues may arise, especially in the already strained markets of London and the South East, according to Mr. Cook.
Savills predicts a 14.2 percent increase in property prices in London over the next five years, while the north-west of England and Yorkshire and the Humber are expected to see a surge of over 28 percent.
Savills noted that these forecasts pertain to average prices in the second-hand market, with potential differences for new builds.
