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As we come to the end of a challenging year, the UK’s economic landscape is showing more signs of recovery amid falling UK inflation and the easing of SONIA (Sterling Overnight Index Average) swap rates, presenting new opportunities for the mortgage market in 2024.
The current outlook suggests a growing optimism that the highest mortgage rates in today’s mortgage market have passed, and we are entering a phase where these rates, though higher compared to what people are accustomed to, are finally more digestible for homeowners. Not only will increased optimism drive demand but there will be many borrowers needing to refinance as these mortgage holders reach the end of their cheap mortgage rates in 2024.
Examining today’s market may leave us with uncertain perspectives. However, casting our gaze back to a year ago reveals a notably calmer conclusion compared to 2022, which had absorbed the repercussions of the infamous mini-budget.
Over this year Consumer Price Index (CPI) inflation has come down, peaking at 11.1 per cent in October 2022 and dropping down to 4.6 per cent 12 months later. SONIA swap rates display increased stability, particularly when compared to the volatility observed around the mini-budget at the end of 2022.
More recently, there were no significant upheavals in the housing and mortgage market in the aftermath of the Autumn Statement. Despite the announcement of the extension of the Mortgage Guarantee Scheme being welcomed by most first-time buyers, there weren’t many significant changes. Calls for a change to Stamp Duty, particularly for those downsizing, were not fulfilled on this occasion.
While mortgage affordability has tightened over the last year as lenders altered internal stress testing in response to higher mortgage rates and the cost of living, more recently this has shown modest improvement. This positive shift can be attributed, in part, to annual wage growth of 7.7 per cent (excluding bonuses) observed between July and September this year. Additionally, the alterations to National Insurance announced in the Autumn Statement will help provide further crucial support, albeit minor.
As we approach the beginning of 2024, estate agents should be ready for a potentially bustling period between Boxing Day and the start of January. Drawing from past trends, this period is expected to witness heightened activity in the housing market. Pent-up demand coupled with a more favourable interest rate environment, this time could restore demand in enquiries and valuation requests.
Is 2024 a good time to buy a house UK?
Many fixed rate mortgages have continued to fall in the last few months of 2023. We have already noticed an uptick in demand for purchase mortgage products in November.
January has the potential to be a busy month for the mortgage and housing market as more people clock on to the trend of falling mortgage rates and acknowledge that the market may have successfully averted an anticipated looming crash.
According to Zoopla, buyers are much more likely to successfully find their ideal home in a suitable location compared to “the stock-starved pandemic years”. A combination of increased supply and lower house prices compared to a year ago presents a more favourable time for buyers to enter the market at their own pace and negotiate a price adjusted to higher mortgage costs.
Zoopla’s November analysis revealed a 1.2 per cent average decline in UK house prices over the last 12 months, with a 34 per cent increase in the number of homes for sale compared to the previous year.
While there is no crystal ball to determine what mortgage rates will be in 2024, it is looking increasingly likely that we have now passed the peaks of mortgage rates for the time being. The reduction in fixed rate mortgages has been fuelled by continued reductions in UK inflation and the easing of SONIA swaps.
The good news is that a larger proportion of individuals are now able to secure mortgage deals under 5 per cent after several major UK lenders reduced rates in November. A continuation of these positive market developments will help instil confidence in lenders to continue to reduce mortgage rates in the New Year.
The Bank of England has increased its base interest rate 14 times since the close of 2021, with the current base rate of 5.25 per cent maintained since August. This development brings a welcomed respite to homeowners grappling with higher mortgage rates over the past two years. We hope to see more reduced mortgage rates across a broader spectrum of the market, especially for those needing higher loan-to-values.
There are more developments needed in the economy before mortgage rates will start to come down significantly. First, the Bank of England will need to be much closer to its 2 per cent inflation target and observe prolonged stability in inflation rates before it considers significantly lowering the base rate. In addition, SONIA swap rates, which underpin fixed rate mortgage pricing, will have to ease enough for lenders to maintain a profitable margin against the cost of funds.
Mortgage lenders continued to reduce rates in November to strategically compete for more business and catch up on missed year-end lending targets. Mortgage rate reductions are showing signs of tapering off for 2023, and we are likely to have to wait until 2024 for more developments in this space.
In these uncertain times, seeking advice from independent mortgage professionals is your best course of action. At Private Finance, we remain committed to staying at the forefront of market developments, actively engaging with industry leaders to gather valuable insights. If you’re interested in receiving tailored mortgage advice for your specific situation, please don’t hesitate to reach out to us.
According to UK Finance, approximately 2.4 million UK fixed rate mortgages are expected to expire from mid-2023 to the end of 2024. With many mortgage holders set to transition away from their existing lower mortgage rates, proactive preparation becomes imperative.
The key to success in the property market is knowledge and strategy. Stay informed, adapt to changing conditions, and seek professional guidance when needed.