As the New Year dawns, people will ask many questions about what the year ahead will bring them. For those whose chief aim is to buy a new home, the issue is whether now – or at least this year – will be a good time to get a mortgage.
Last year was clearly a difficult one for the property market, with prices falling (albeit less than many expected), inflation squeezing real incomes and making it hard to raise deposits, plus higher mortgage rates due partly to the lingering effects of the misfiring September 2022 ‘mini-Budget’ and a series of base rate rises by the Bank of England.
All that meant fewer mortgages and lower levels of house price purchases, but the landscape could be changing in a way that creates something of a sweet spot in the market for some buyers.
That ideal would be for mortgage costs to fall, with inflation easing (making it easier to save for a deposit), all while house prices do not return to an inflationary pattern.
Could 2024 be such a year? The stage has been set by a 2023 of modest house price falls. The final Nationwide House Price Index of the year indicated that across the last 12 months, the average cost of a home sold with a mortgage (as opposed to cash buyers) fell by 1.8 per cent.
Most house price surveys over the course of 2023 had indicated similar overall small drops, but often with significant regional variations, with the south and east seeing prices fall and places further north experiencing a slight increase. However, the Nationwide survey showed only Scotland and Northern Ireland had seen prices rise over the full year.
Nonetheless, falls in northern and Midland areas were more modest than in the south and east, with East Anglia seeing the greatest fall at 5.2 per cent, followed by the ‘outer south east’ at 4.5 per cent.
This means that people planning to see a mortgage advisor may see more comparative bargains in Oxford than in Oswestry, Ormskirk, Oban, or Omagh.
Just as importantly, the experts at Nationwide do not expect prices to start shooting up anytime soon. Nationwide’s chief economist Robert Gardiner predicted that prices will either be flat or at least only see modest increases.
He remarked: “Even though house prices are modestly lower and incomes have been rising strongly, at least in cash terms, this hasn’t been enough to offset the impact of higher mortgage rates.”
Given these are three times what they were even in the midst of the pandemic, he suggested the market will remain subdued.
However, there may be good reasons to expect mortgage costs to fall somewhat this year. Firstly, there is increasing competition, with the opening days of 2024 seeing what some see as the opening salvoes in a mortgage rate price war. Halifax started by cutting its fixed rates by nearly one per cent, with Leeds Building Society following with its own cuts.
Furthermore, we may be seeing the Bank of England base rate start to fall sooner than some expect. After 14 successive increases, the Monetary Policy Committee has held the rate in its last three meetings.
While the minutes of the latest meeting revealed the expectation is the target Consumer Prices Index inflation rate of two per cent will not be reached until the back end of 2025, the inflation rate has been dropping more rapidly than broadly expected in recent months.
As recently as September it was 6.7 per cent, but then dropped to 4.6 per cent in October and 3.9 per cent in November. This may suggest a return to two per cent could arrive a lot sooner than late 2025, which could provide more wriggle room for rate cuts.
The latest wider economic news has been gloomy; the UK could be on the verge of recession after the October figures showed a decline in gross domestic product over the previous three months.
However, a consequence of this could be that rate cuts come sooner. A recession, even a very mild one, will do nothing to send house prices soaring, but will curb inflation further and could prompt a looser monetary policy that brings cheaper mortgages.
Of course, a weak economy is never good news for the housing market as a whole, since people fearing for their jobs will be less willing to commit to such a big financial step. But for those in sufficiently safe employment, 2024 could bring affordable prices and cheaper mortgages. It won’t be a good year for all, but for some house buyers, it could be great.
