At the end of last year, with mortgage rates falling, Sarah Brown began looking for a home to buy on the Isle of Wight. But she was conflicted: she expected them to fall further – and the longer she waited, the better the deal she would get. “At the same time, if mortgage interest rates went down, I was worried that rates would go up and I would end up paying more,” she says.
When she spotted a house for sale at auction in January, she decided to act, winning a bid of £292,000, 9 per cent below the guide price. “I thought I should go for it,” she says.
Today, she has a mortgage interest rate of 4.43 per cent, fixed for two years, which she hopes she can lower further by finding a new deal before the sale closes. “Maybe things will get better, but I think I got into the market at the right time,” she says.
The UK property market has been through a difficult period for 15 months or so – effectively since the disastrous 'mini' Budget in September 2022. Rising interest rates, rising inflation figures and concerns about UK growth have seen mortgage rates rise to their highest levels in a decade. Of time in two periods. 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 HMRC.
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 in the same period in 2023, according to property portal Rightmove.
Buyers have been lured back by falling mortgage costs: the average interest 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 financial information company Moneyfacts. For buyers with better capital, repairs of less than 4 percent are available.
And house prices are growing again, rising 1.3 per cent in January, according to Halifax Bank – the fourth straight month of gains.
However, judged as a multiple of annual earnings, prices are at their lowest levels since 2020 (and in London, since 2014) according to the National Building Society – although rising interest rates mean first-time buyers' mortgage payments are now absorbing Much greater annual profits. Their take home salaries compared to 2021.
Estate agents, always eager to predict a recovery, are raising their forecasts: in October, Knight Frank predicted a 4 per cent decline in average prices through 2024; By January, they changed this to a 3 percent increase. Future interest rate cuts by the Bank of England will likely lead to a further decline in mortgage rates, further stimulating the housing market.
But with the global economic outlook uncertain, and UK inflation still above the 2 per cent target, will more people give in to the temptation to buy a home this year?
Right now, low mortgage rates are encouraging buyers who couldn't afford to move for most of last year, or didn't feel it was worth it. Mortgage approvals for homebuyers hit a six-month high in December, according to Bank of England figures, reaching 50,459.
With better fixed-rate deals available, it's becoming 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.com. Mediator John Charcol.
“We've seen an increase in inquiries this year as well – both from movers and first-time buyers, and there's increased confidence,” says the company's Ray Bolger.
Last summer, Anthony Eastwood, who works in real estate PR, wanted to move to a larger house in Tamworth, in the West Midlands, with his wife and two-year-old daughter, but high mortgage rates meant he couldn't afford to move.
Today, having sold his house for the asking price of £250,000, he is buying one for £391,000, borrowing an additional £120,000 at an interest rate of 4.17 per cent. His total mortgage repayments rose from £900 to £1,317 – but had he made the move in the summer, he would have been burdened with £1,600 a month.
“We'll need to be a little more judicious with our money and tighten our portfolio a little bit. But before, it was very tight.
Agents and buyers are reporting a new willingness this year on the part of sellers to close a deal. “Sellers need to continue to rein in their price expectations,” says Lucian Cook, head of UK residential research at real estate firm Savills.
Astrid Kotoulas and her husband looked at nearly 30 homes in west London last year, making multiple offers, including one at asking prices, but the seller turned it down. However, in January she offered £590,000 for a two-bedroom property, £10,000 less than the asking price, and her offer was accepted.
“This year we felt a shift: Suddenly the homes that hit the market were the ones we were looking for, and they were more affordable. Agents stopped showing us homes that weren't a good fit for us,” Kotoulas says.
69%The year-on-year increase in the number of mortgages being arranged for clients by broker John Charcol in January
Rising rents also made the couple more focused on finding a suitable home to buy. The landlord of his one-bedroom flat in Notting Hill increased the rent by 25 per cent last June, from £1,600 to £2,000, and Kotoulas expects a further rise of at least 10 per cent this summer.
“We couldn't accept another increase for an apartment that needed a significant amount of work,” she says.
For their part, sellers are making more realistic offers, as mortgaged buyers return to the market, and the deep discounts that cash buyers often demand 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, Janie de Borchgrave Daltina received a first offer on her apartment in Bath, for £1.2 million. She accepted, but the buyer then backed out, and she resold the house again in October; By December, it had an offer of £1.25m.
“Last summer, the only buyers had cash and expected a huge discount. It felt predatory,” says de Borchgrave Daltena, who has worked locally for many years in valuations as a chartered surveyor. “But in December I suddenly felt there was “There is a rush now that lower interest rates have brought mortgaged buyers back into the market.”
Buoyed by growing interest from buyers, sellers are listing their homes in increasing numbers: the number of homes for sale in the UK in the first six weeks of this year rose by 22 percent compared to the previous year, according to the Zoopla property portal.
After getting married early last year, Fred Shawver and his wife decided to sell the three houses they owned in London and buy a house that was cheaper to visit the city than in Los Angeles, where their main home is.
But they waited until January to put homes on the market – his home in Maida Vale Mews, on the market for £1.525 million, and her two homes in Hammersmith and Holland Park, worth much more.
“Finally, I now have the feeling that there are people waiting there who are willing to pay money,” he says.
However, there are still significant economic risks that could reduce buyer demand and bring sellers back to normal.
The escalating conflict in the Middle East threatens global growth. The speed and scale of interest rate cuts this year remains unclear. After the 4 per cent inflation figure for January was published on Wednesday, traders in swap markets – through which lenders price their term trades – increased the number of interest rate cuts they expect before the end of the year. But their forecasts are still more pessimistic than in December.
“I expect mortgage interest rates to rise over the next two months to reflect movements in swap rates since the turn of the year,” says Andrew Goodwin, chief UK economist at Oxford Economics. “There tends to be a small gap between changes in swap rates and changes in mortgage interest rates because lenders will still be lending money they borrowed when swap rates were lower. When they exhaust that money and go back to borrowing at higher swap rates, they will raise their mortgage rates.” With them.
Some lenders have already responded: earlier this week, Yorkshire Bank, Clydesdale Bank, Nationwide Bank and GenH all increased mortgage interest rates on some deals.
Another obstacle is the high borrowing costs faced by households who must remortgage this year. The Decision Research Foundation estimates that their number is 1.5 million, and their annual bill will increase by £1,800 on average.
Meanwhile, average rents in London have risen by 11 per cent in the past year, and 22 per cent in the past two years; Nationally, the numbers are 10 percent and 19 percent, respectively, according to the Hamptons. With bills rising and inflation still above target, the ability of first-time buyers to save up for a deposit remains out of reach for many. Much will depend on what assistance, if any, the government provides in the spring budget scheduled for March 6.
“Even if conditions continue to improve in 2024, the legacy of the two-year cost-of-living crisis on the country’s housing costs will still be keenly felt,” says Lindsay Judge, research director at the Resolution Foundation. “And the anticipated silver lining of higher interest rates — lower home prices that make housing more affordable for the next generation of homeowners — has yet to materialize.”
Moreover, even if mortgage rates continue to fall, the amount buyers can borrow will not increase until the Bank of England lowers interest rates — a fact that few appreciate, according to Bolger.
Swap markets may be what mortgage lenders price interest rates on, but interest rates dictate how much they can lend, he says, because for most mortgage products, stress testing rules require banks to calculate affordability using the current interest rate.
“Currently, most borrowers who choose any non-fixed interest rate for at least five years have to show they can continue repaying at rates between 8 percent and 10 percent, depending on the lender, which is about the same level that was,” he says. “It was last fall.”
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“People may feel they can afford more now that mortgage interest rates have fallen, but in practice, most lenders will wait for the Bank of England to lower the interest rate before they increase the loan limit.”
Therefore, it is uncertain how long the recent surge in home sales will last. Few expect 2024 to be a booming year for the real estate market.
“The prospect of a relatively weak year for economic growth and a general election in the autumn means we should not get carried away,” says Lucian Cook, of Savills.
“Sure, the market may strengthen, but it may also weaken,” says Chauvier. For him, the issue of timing the market comes second to finding the right property. “We have a life to live, and things to do. It's not just about financials, it's about finding a home that's right for the family.
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