Britain’s biggest mortgage lender, Halifax, reported that house prices fell – the first fall in six months for the UK housing market.
Higher Borrowing Costs Cooling Market
The lender said that higher mortgage rates stunted buying ability and appetite, leading to a 1% (£2,900) drop in average purchase price. The average UK property now costs £288,430.
Despite Decrease, Housing Still Costs More
Historical data from Halifax shows that even with this decrease, the average house price is still 0.3% higher than the previous year.
Fall In Prices Not a Surprise
Kim Kinnaird from Halifax Mortgages, said the fall was “not entirely unexpected particularly in view of the reset the market has been going through since interest rates began to rise sharply in 2022”.
Fall Was Expected Due to Increased Borrowing Costs
She continued, “affordability constraints continue to be a challenge for prospective buyers, while existing homeowners on cheaper fixed-term deals are yet to feel the full effect of higher interest rates.”
Disparity Across Regions
Property website Zoopla reports ‘Prices continue to fall in southern regions, led by the East of England (-2.3%) and South East(-2.0%). On the other hand, house prices are rising the most in Northern Ireland (+4.1%) and Scotland (+2.1%).’
London Seeing Many Leave
Data from Centre for Cities shows that London and the South East has seen more people leaving the area than any time over the last 5 years. The pandemic restrictions have been cited as one reason, but house prices are another.
Average London House Prices 13.3 Times Average Salary
With higher prices comes higher levels of borrowing. When mortgage rates are high, this costs even more than usual. As more jobs move online, many people are opting to leave the capital and live elsewhere.
Uncertainty About Interest Rates
The largest single factor in determining the strength of the housing market is mortgage rates. Experts are divided on when, and by how much these are likely to change.
Early Predictions Looking Less Certain
Many commentators predicted last year that summer 2024 would be the start of the interest rate reduction cycle. As we approach that time, those predictions are looking less likely.
Forecasts for 3% Base Rate by 2025
Experts at Capital Economics are predicting that the Bank of England Base Rate will reduce to 3% by 2025. It currently sits at 5.25%, so that would be a significant reduction.
Mortgage Rates Will be Lower
Last time the Bank of England Base Rate was 3% was in November 2022. The mortgage rates at the time were around the 4% mark, which is nearly 1% lower than current prices.
Mortgage Rates Are a Prediction
It’s not an exact science predicting mortgage rates, because the banks will set a price based on market analysis. We can safely assume they’ll be much lower though as base rates fall
What Does a Rate Drop Look Like in Payment Terms?
On a £150,000 mortgage repaid over 25 years, a 1% drop in rates will be the equivalent of around £100 per month. A large help in the current climate.
Experts Predict Subdued House Price Growth
Halifax’s Kim Kinnaird said, “the housing market remains sensitive to the scale and pace of interest rate changes, and with only a modest improvement in affordability on the horizon, this will likely limit the scope for significant house price increases this year”.
Moving Costs Another Factor
The property market is also impacted by additional fees – professional fees, estate agent fees, stamp duty, removal firms etc. As general moving services increase in price, incentive to move lowers.
House Building Predicted to Rise
Construction specialist Glenigan is forecasting that the number of housing development projects under construction will rise by 7% in 2024, and 8% in 2025.
Change of Government Can Impact Property Market
In the medium term we’re expecting a change in government, so the policies enacted can help shape markets. If more construction projects are given the green light, more housing is opened up and that can satisfy demand, but calm prices.
Cautious Growth Expected
For now, all eyes will be on interest rates. If they drop, mortgage rates will drop and sector activity will pick up. If they don’t, expect house prices to stay static, or even fall slightly.
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