Happy new year to you all, I hope you all enjoyed a good festive break. In this market update we look at what lies ahead for the coming year including house prices, interest rates and economic factors that will determine how this year pans out for homeowners, property investors and developers.

Market 2023 Reflection

2023 was a difficult year for anyone considering taking out a mortgage, base rate had increased from 0.1% and hit a high of 5.25% in 2023. This made funding a main residence, a buy to let or a property development more expensive and naturally the housing market slowed down.

House prices dropped slightly in 2023, the office for national statistics reports the average house price was £288,000 in October 2023 which was £3,000 lower than the previous 12 months. There were annual decreases of 1.4% in England, 3% in Wales but an annual increase of 0.2% in Scotland.

The Bank of England held interest rates at 5.25% in August 2023 and have made no further changes to date. In our June market update we expected the Bank of England to pause interest rates at 5% in August, but they made one more increase to 5.25% and then held interest rates.

What Can We Expect of the Market for 2024?

Inflation

Inflation peaked last year and with-it interest rates too. Inflation is now at 3.9% and heading towards the government’s target of 2%.

House Prices

House prices should be close to bottoming out although we may see an increase in unemployment which may have some further bearing on house prices, but nothing major. Falling interest rates should override and we expect positive year on year for property prices in 2024. 

What do the experts think:

Pantheon Macroeconomics – House prices up by 5%

Capital Economics – Avoid decreases altogether this year.

Hometrack expect a fall of 2%, you can read their full report here although the executive summary is below:

• Annual house price inflation is -1.1%, down from +7.2% a year ago 
• Market sentiment improving with new sales agreed +17% year-on-year 
• House price falls starting to moderate as sales improve 
• Mortgage regulations a key reason for only modest price falls in 2023, along with strong labour market and rapid earnings growth 
• First-time buyers are largest group of would-be movers in next 2 years (40%) followed by upsizers (34%) 
• Almost half of buyers living in southern England looking to move >10 miles in search of better value for money 
• House prices to fall 2% over 2024 with 1m sales

Interest Rates

Economists are predicting base rate to fall this year: In a poll by the Times newspaper of dozens of economists, 42.5% said 2 base rate cuts, 17.5% said 3 and 17.5% said 4, with just 10% expecting 4 or more cuts and 5% expecting no cuts at all. We would expect each cut to be 0.25%.

Residential Mortgage Rates Sub 4% 

5-year interest rates for homeowners will this week be sub 4% again. In the last few hours Halifax, HSBC, and many other lenders have all repriced downwards by around 0.3% to 0.4%. 5-year money at sub 60% loan to value will once again be below 4%. This is good news for property buyers and those whose mortgages come up for renewal over the coming months. 

As well as residential mortgage rate cuts we are also seeing buy to let and commercial lenders starting to reduce their rates too and we expect this to continue throughout the year.

Our Final Thoughts 

This is an election year. Everything changes in an election year as the current government in power will want to have a strong economy to present themselves in the best light heading into the election. Did the base rate need to go to 5.25%, probably not, but it gives the Bank (and the Government) the best chance at being more aggressive in cutting rates and introducing stimulus as this year progresses. 

We believe inflation will fall away this year and that will allow interest rates to fall too. We expect the base rate to start falling as early as March and would be surprised if we have less than 3 decreases of 0.25% taking us back down to 4.5% by the end of the year. 

We also believe liquidity and stimulus will increase towards the end of this year, in whatever form that takes, and this will have an impact (up) on property prices. 

The question then for many homeowners needing to re-mortgage or those first-time buyers wishing to purchase a property is, should I wait until rates fall further? That’s not an easy question to answer but perhaps consider this, anyone on a lender’s variable rate now is likely paying more than if they were to change to a new fixed rate. Does holding off save you money given the higher costs of waiting? Also consider that 5-year money is forward looking, and money markets will already be pricing in expected drops in the Bank base rate. 

If you are waiting to buy a property when mortgage rates are lower, you may find that by the time interest rates are at your desired level that house prices have already started to increase, and you may end up needing to borrow more as a result. Timing the market is difficult.

After a stagnant 2023, we are optimistic for 2024 and we thank you all for your continued support. If you wish to discuss the mortgage market and your plans for this year, we are all ears, call us on 0117 989 7950 or drop us an email [email protected]