Lower prices and improved mortgage affordability may start to strengthen the property market into 2024 as home movers and those remortgaging begin to accept the “new normal” of higher interest rates.
The latest Halifax House Price Index showed a sixth consecutive month of house price decreases, but the pace of decline has slowed from a 1.8% decrease between July and August, to a 0.4% decrease between August and September. Average prices remain £39,0000 above pre-pandemic levels and according to the latest report the average house price is now £278,601, representing a 4.7% fall against this time last year.
Sentiment amongst buyers and those remortgaging suggests that there is hope inflation, and the Bank of England’s efforts to halt inflation by raising interest rates, has peaked. The latest data from mortgage platform Twenty7tec shows that almost half of all mortgage searches are for 2 years and under. A comparison make all the more startling compared to 22.5% at the same time last year.
Nathan Reilly, director at Twenty7tec hopes that the dip in mortgage searches in September is symptomatic of some much needed stability, rather than a downward trend in demand.
“For the first time in five years, we saw lower overall volumes of mortgage searches in September than we did in August. Perhaps that’s because people are hoping that rates have now peaked and that November’s Bank of England decision will bring stable news for the mortgage market?
“Setting aside December performance (the quietest month every year), September 2023 was the quietest month for mortgage searches since October 2021, and the quietest month for remortgages since June 2022. It was also the lowest month for total First Time Buyer searches since November 2020.
Rightmove’s mortgage expert Matt Smith says figures suggest an acceptance of the new normal in terms of interest rates and the cost of borrowing.
“It’s now the tenth week that average rates of dropped, as the slow but steady downward trend of fixed-mortgage rates continues. As more lenders begin to offer sub-5% rates, this is likely to demonstrate increasing confidence that swap rates, the underlying costs of fixed rate mortgages, will remain stable for lenders, meaning there may be more room for rates to fall, particularly for those with a smaller deposit.”
“We’re starting to see more attractive rates in some Loan-to-Value (LTV) brackets than a year ago as we begin to compare rates with the post mini-Budget period, though this doesn’t take away the fact that mortgage costs are still much higher than most have been used to. Whilst there have been twists and turns, home buyers are coming to terms that rates won’t be returning to the previous ultra-low levels any time soon. However, this continued stability can at least give the many people still looking to move more certainty about what they can afford, and the type of mortgage offer they might expect.”
Commenting on the Halifax House Price Index Kim Kinnaird, Director at Halifax Mortgages said that there are still factors which “constrain buyer demand and (will continue to) put downward pressure on house prices into next year.”
“Activity levels continue to look subdued compared to recent years, with industry data showing lower levels of new instructions to sell homes and agreed sales. Borrowing costs are the primary factor, given the impact of higher interest rates on mortgage affordability.
“However, with Base Rate now likely to be at or around its peak, we are seeing fixed rate mortgage deals ease back from recent highs. Many economists and financial markets predict that Base Rate will remain higher for longer, with any significant cuts appearing unlikely until inflation gets closer to the Bank of England’s 2% target. Overall, these factors are likely to keep mortgage rates elevated in comparison to recent years, constraining buyer demand and putting downward pressure on house prices into next year.”
CEO of Yopa, Verona Frankish, was more bullish suggesting
“Interest rates have finally stopped climbing and although they remain at their highest since the spring of 2008, this should bring about a boost to buyer sentiments over the coming months. All things considered, the market has so far weathered the storm with respect to the wider economic landscape and should continue to stand firm over the remainder of a year.”
Iain McKenzie, CEO of The Guild of Property Professionals, added
“It comes as no shock that house prices have fallen slightly during the usual summer slowdown, especially in light of the ongoing squeeze on household bills.
“While the recent unexpected decision by the Bank of England to maintain the base rate at 5.25% was a relief for mortgage-dependent buyers, this rate is still significantly higher than last year. Despite a slight dip in average house prices in September, affordability remains a concern, especially for first-time buyers who must consider the impact of higher monthly loan repayments.
“The pause in base rate hikes, along with competitive mortgage rate reductions from various lenders, are indicators that the market is stabilising. Despite the financial challenges facing households, there remains robust demand for high-quality housing. Buyers have become accepting of the higher-rate environment, and sentiment is expected to improve further if interest rates hold steady.”
