At the end of last year, with mortgage rates falling, Sarah Brown started searching for a home to buy on the Isle of Wight. But she was conflicted: she expected them to drop further — and the longer she waited the better the deal she would get. “At the same time,” she says, “if mortgage rates came down, I was worried that prices would increase and I’d end up paying more.”
When she spotted a home for sale at an auction in January, she decided to act, winning with a bid of £292,000, 9 per cent lower than the guide price. “I thought I should just go for it,” she says.
Today, she has a mortgage rate of 4.43 per cent, fixed for two years, which she hopes she may be able to cut further by finding a new deal before she completes her sale. “Maybe things will get better still, but I think I’ve jumped into the market at the right time,” she says.
The UK property market has had a difficult 15 months or so — effectively since the calamitous “mini” Budget in September 2022. Rising interest rates, higher inflation numbers and concerns about UK growth sent mortgage rates to decade-long highs in two spikes. Last year, the number of completed property sales in the UK was 19 per cent lower than in the previous 12 months, according to provisional figures from HM Revenue & Customs.
But recent data suggests a recovery is on the way. Agreed sales in the first six weeks of this year are 16 per cent higher than the same period in 2023, according to property portal Rightmove.
Buyers have been lured back by falling mortgage costs: the average rate for a five-year fixed term deal fell from 6.37 per cent at its peak last August to 5.23 per cent on Monday, according to Moneyfacts, the financial information company. For the best capitalised buyers, sub-4 per cent fixes are available.
And house prices are growing again, up 1.3 per cent in January, according to lender Halifax — the fourth consecutive month of gains.
Judged as a multiple of annual earnings, however, prices are at their lowest since 2020 (and in London, since 2014) according to Nationwide building society — though rising interest rates have meant that first-time buyers’ mortgage payments now absorb significantly more of their take-home pay than in 2021.
Ever eager to call a recovery, estate agents are bumping up their forecasts: in October, Knight Frank predicted a 4 per cent fall in average prices over 2024; by January they had changed this to a 3 per cent gain. And future interest rate cuts by the Bank of England would probably result in further mortgage rate falls, spurring the housing market further.
But with the global economic outlook uncertain, and UK inflation still stuck above its 2 per cent target, will more people really be tempted to buy a home this year?
For now, falling mortgage rates are encouraging buyers who couldn’t afford a move for most of last year, or didn’t feel it was worth it. Mortgage approvals to homebuyers hit a six-month high in December, according to Bank of England figures, reaching 50,459.
As better fixed-rate deals become available, it is easier for buyers to plan their finances: the share of those taking out variable, tracker or discount mortgages fell from 36 per cent in November 2022, to 7 per cent last month, according to mortgage broker John Charcol.
“We’ve seen a pick-up in inquiries this year, too — both from movers and from first-time buyers, there’s a growing confidence,” says Ray Boulger of the company.
Last summer, Anthony Eastwood, who works in property PR, wanted to move to a larger home in Tamworth, in the West Midlands, with his wife and two-year old daughter, but high mortgage rates meant he couldn’t afford the move.
Today, having sold his home for the asking price of £250,000, he is buying one for £391,000, for which he is borrowing an additional £120,000 at a rate of 4.17 per cent. His total mortgage payments have increased from £900 to £1,317 — but had he done the move in the summer, he would have been saddled with £1,600 per month.
“We’ll need to be more prudent with our finances and tighten the purse strings a little. But before, it would have just been too tight,” he says.
Agents and buyers report a new willingness this year on the part of sellers to strike a deal. “Sellers are having to continue to rein in their price expectations,” says Lucian Cook, head of UK residential research at estate agent Savills.
Astrid Koutoulas and her husband looked at nearly 30 homes last year in west London, making multiple offers, including one at asking prices which the vendor refused. In January, however, she offered £590,000 for a two-bedroom property, £10,000 below the asking price, and had her offer accepted.
“This year we felt a turn: suddenly the homes coming to market were the ones we were looking for, and their prices were more reasonable. And agents stopped showing us homes that were totally unsuitable,” says Koutoulas.
69%Annual increase in the number of mortgages arranged for clients by broker John Charcol in January
Rising rents also increased the couple’s focus on finding a suitable home to buy. The landlord of their one-bedroom garden flat in Notting Hill increased the rent by 25 per cent last June, from £1,600 to £2,000, and Koutoulas anticipated another rise of at least 10 per cent this summer.
“We just couldn’t stomach another increase for a flat that needs quite a bit of work,” she says.
For their part, vendors are reporting more realistic offers, as mortgaged buyers return to the market and the big discounts often demanded by cash buyers become easier to resist.
The share of UK homes bought with cash fell from a high of 38 per cent in November 2022 to 30 per cent last month, according to Hamptons estate agents.
Last summer, after three months on the market, Janey de Borchgrave d’Altena received a first offer for her Bath apartment, for £1.2mn. She accepted but the buyer then withdrew, and she listed the home again in October; by December she had an offer for £1.25mn.
“Last summer the only buyers around had cash and expected a big discount. It felt predatory,” says de Borchgrave d’Altena, who has worked locally for many years on valuations as a chartered surveyor. “But in December I felt there was suddenly a rush now that falling interest rates are bringing mortgaged buyers back to the market.”
Buoyed by growing interest from buyers, sellers are listing their homes in increasing numbers: the number of UK homes for sale in the first six weeks of this year increased by 22 per cent on a year earlier, according to the Zoopla property portal.
After they were married early last year, Fred Chauffier and his wife decided to sell the three homes they own in London and buy a cheaper pied-à-terre for visits to the city from Los Angeles, where they have their main home.
But they waited until January to put the homes on the market — his Maida Vale mews house, for sale at £1.525mn, and her homes in Hammersmith and Holland Park, worth significantly more.
“Finally, now I’m getting the sense that there are people waiting out there who are willing to put up the money,” he says.
There remain, however, significant economic risks that could reduce buyer demand and send sellers back into their shells.
Escalating conflict in the Middle East threatens global growth. The speed and size of interest rate cuts this year are still unclear. After January’s 4 per cent inflation figure was published on Wednesday, traders in swap markets — from which lenders price their fixed-term deals — increased the number of rate cuts they expect before the end of the year. But their forecasts remain more pessimistic than they were in December.
“I would expect mortgage rates to edge up over the next couple of months to reflect the moves in swap rates since the turn of the year,” says Andrew Goodwin, chief UK economist at Oxford Economics. “There tends to be a bit of a lag between changes in swap rates and changes in mortgage rates because lenders will still be in the process of loaning out the funds they borrowed when swap rates were lower. When they’ve exhausted those funds and they go back to borrow at higher swap rates then they will put up their mortgage rates.”
Some lenders are responding already: earlier this week, Yorkshire Bank, Clydesdale Bank, Nationwide and Gen H all increased mortgage rates on some deals.
Another obstacle comes from higher borrowing costs faced by households who must remortgage this year. The Resolution Foundation think-tank estimates they number 1.5mn and their annual bill will increase by £1,800 on average.
Meanwhile, average rents in London have climbed 11 per cent in the past year and 22 per cent in the past two years; nationally the numbers are 10 per cent and 19 per cent respectively, according to Hamptons. And with higher bills and inflation still above target, the ability for first-time buyers to save for a deposit remains out of reach for many. Much will hinge on what assistance, if any, the government provides in the spring Budget on March 6.
“Even if conditions continue to ease in 2024, the legacy of a two-year cost of living crisis on the nation’s housing costs will still be keenly felt,” says Lindsay Judge, research director at the Resolution Foundation. “And the expected silver lining of higher interest rates — lower house prices that make housing more affordable for the next generation of homeowners — has yet to materialise.”
What is more, even if mortgage rates continue to fall, the amount buyers can borrow won’t increase until the Bank of England cuts interest rates — a fact that few appreciate, according to Boulger.
Swap markets may be what mortgage lenders price their rates off but interest rates dictate how much they can lend, he says, since for most mortgage products, stress test rules require banks to calculate affordability using the current interest rate.
“Currently most borrowers choosing any rate not fixed for at least five years must show they could keep up repayments at rates between 8 per cent and 10 per cent, depending on the lender, roughly the same level as last autumn,” he says.
“People might feel they can afford more now that mortgage rates have fallen but in practice most lenders will wait for the Bank of England rate to fall before they increase the maximum loan.”
It’s uncertain, therefore, how long the recent uptick in home sales will last. Few are expecting 2024 to be a bumper year for the property market.
“The prospect of a relatively weak year for economic growth and an autumn general election means we shouldn’t get carried away,” says Lucian Cook of Savills.
“Sure, the market might strengthen,” says Chauffier, “but it might soften, too.” For him, the question of timing the market takes second place to finding the right property. “We have a life to live, things to do. It’s not purely about financial metrics, it’s about finding a home that works for the family.”
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