You wouldn’t believe it from all the negative press around mortgages and rates at the moment, but there is actually some good news this month as we see fixed rates drop across the board. Surprisingly, the housing market has remained remarkably resilient in the past six years, withstanding severe economic headwinds posed by Brexit, the coronavirus pandemic and the ongoing cost of living of crisis. Recent growth in the space has been particularly eye catching, with the average UK home value rising more than a fifth since mid-2020.
So, will the market crash or cool off?
Well, markets in other parts of the world are looking increasingly fragile. The Bank of America recently said the US market is already hitting the brakes, while Australian property values have dropped 2% since May.
But while the annual double-digit growth that the property market has enjoyed over the past couple of years in the UK looks unsustainable, a crash still appears some way off. The most likely short-term outcome is for prices to start levelling off.
A key factor for the recent spike in property valuations has been limited supply and strong demand. As a result of this, many homes have fetched well above their initial asking price. And this supply shortage remains, especially with the government continuing to fall short of its annual new homes target.
The market is likely to remain under pressure for some time, with inflation – the rate at which prices rise – set to remain high and the Bank of England likely to raise interest rates further. BUT, whilst the outlook is uncertain, a relatively soft landing for the market is still possible, given that employment rates remain high and there is a lack of properties coming up for sale.
Last week, figures from financial information service Moneyfacts showed that there are now 5 year fixed rates available below 5%, there are also other products available such as discounted or tracker products at 0.48% above base rate which is great. Again, this wasn’t widely talked about in the press and certainly a step in the right direction.
Finally, its worth noting that the Bank of England base rate doesn’t have as much impact on mortgage rates as the media may want you to believe, many lenders have already factored in a few more base rate increases, but the mortgage rates are more dependent on Swap rates or LIBOR than the base rate, these rates have been consistently dropping over the last month – 6 weeks. So it’s not all doom and gloom.
Overall, data has been pointing to a sharp slowdown in the housing market. Last week the Bank of England said the number of mortgages approved in October fell to its lowest level since June 2020. Whilst it’s welcome news that homes are selling over the asking and of course rates are finally dropping, the Bank of England’s next review of the base rate of interest is on 15 December and experts are widely predicting the Bank will increase it again, following the last rise of 0.75% to 3% last month. If that does happen, mortgage rates could increase again. So, if you’re looking for a first mortgage or are planning to remortgage in the next few months you should start looking at your options asap.
