It has been a rollercoaster year in the mortgage world, with rates moving up and down with each new piece of economic data. The housing market has been bumpy, too. In September, prices recorded the first annual fall for a decade, according to official data, but lenders say demand has been growing in recent months. Anyone looking to buy a home soon will be wondering what 2024 has in store.
This week there have been reports that the government is working on a scheme to help first-time buyers, which could have an impact on how easy it is to borrow and on property prices.
But in the meantime, what can you expect from mortgage rates and the housing market? We asked some experts for their forecasts.
Mortgages: deals below 4%
The new year “could start with a bang” on the mortgage front, says David Hollingworth from the broker firm L&C Mortgages. It has been a tough year for many homebuyers and those looking to remortgage, but a bigger-than-expected drop in UK inflation in November has intensified the downwards pressure on the cost of borrowing.
The drop fuelled money market expectations that the Bank of England could cut interest rates as early as spring 2024, and already a five-year fixed-rate mortgage deal priced at below 4% is on sale for the first time since May. Launched by a small lender called Gen H, it has a rate of 3.99%, is for loans up to 60% loan-to-value (LTV) and carries a £999 fee.
The move by Gen H should set the tone for more cuts in the new year, assuming money market swap rates – which largely determine the pricing of new fixed deals – remain at current levels, Hollingworth says. “I think we could see lenders come out swinging to get off to a good start,” he adds.
As things currently stand, homebuyers with small deposits will find that average rates are now down “considerably” from just a few months ago, according to the data provider Moneyfacts. For example, the average two-year fixed rate at 95% LTV (that is, for someone who can only raise a 5% deposit) stood at 6.21% on 21 December – down from 7.1% in August.
“Rates are already much better than they were in the summer, and there is still competition driving that,” Hollingworth says. “I think that will encourage more activity as the year progresses.”
If you are planning to buy at a time when rates are falling, do not worry about grabbing a deal too early because you can change your mind if you see a better offer before everything is signed.
Chris Sykes, a technical director at the broker Private Finance, says some homebuyers have managed to save chunky sums by taking advantage of the cost of new mortgage deals coming down while they wait for their purchase to complete. “Some of the savings for our clients [who have been switched on to cheaper deals while their purchase goes through] are well into the tens of thousands of pounds for the whole mortgage term,” he says.
As has been the case for some time now, new five-year fixed deals are cheaper than two-year ones: the average five-year fix at 95% LTV was 5.64% on 21 December.
But despite that, says Hollingworth, “quite a substantial portion” of borrowers are still opting for two years because it means they are tied in for a shorter period. They can then review their home loan in just a couple of years and move to a cheaper deal if – as many expect – interest rates have come down by then.
Deposits: a ‘decent number’ of 95% loans
Product choice has improved, including for borrowers who do not have a large deposit to put down. Those only able to stump up a 5% deposit would, as of 21 December, find 251 mortgage deals to choose from, compared with 144 at the start of December last year, Moneyfacts says.
Sykes says he expects there to continue to be a “decent number” of 95% deals on offer and: “They will be quite competitively priced as well.”
One development that should help keep the shelves stocked with low-deposit mortgages is a decision, buried in the autumn statement documents, to extend the government’s mortgage guarantee scheme until June 2025 (it had been due to end on 31 December this year). This gives lenders the chance to buy a guarantee on the riskiest portion of the mortgage – the bit between 80% and 95% LTV. The government would cover that chunk of the lender’s losses if a home had to be repossessed in the event of a property crash.
If you are able to get together a deposit of 10% or even 15% – perhaps by getting some help from “the bank of mum and dad” – then that will give you access to more competitive rates.
Hollingworth gives the example of a 95% LTV two-year fixed rate offered by Leeds building society, versus a 90% one offered by Nationwide. The Leeds deal has a fixed rate of 5.72%, while the Nationwide one is priced at 5.35%.
Assuming a £200,000 mortgage debt and a 25-year term, the Leeds deal requiring only a 5% deposit would cost £1,254 a month, while the Nationwide deal where the minimum deposit is 10% would give a monthly payment of £1,210 (both products come with a £999 fee that we have not added to the loan). That’s a difference of £44 a month, or £528 over a year.
Hollingworth says that is “not perhaps as wide [a differential] as you might anticipate. But it does show there is still that price differential there. And that will continue as you go further down the LTV scale.”
More to the point, with house prices and mortgage costs as they are, many would-be buyers simply cannot afford 95% mortgage rates and will need to accumulate a bigger deposit in order to access a lower rate.
This is where the government seems keen to step in to help. One mooted scheme involves making it easier for lenders to offer long-term fixed-rate mortgages, similar to those available in other countries. Borrowers who can show they can afford the monthly repayments at the outset can be considered a good bet for the long term because the rates are not going to change, and lenders can feel comfortable offering loans on a lower deposit.
Hollingworth says that fixed-rate mortgages of 10 years and more have proved unpopular in the past as borrowers want the option of changing at a later date, so the government would need to consider making any new loans as flexible as possible.
He adds that rates on any long-term fixed mortgage are unlikely to be the most competitive on the market, so it’s unlikely to have an impact on the top of best-buy tables.
House prices: possible falls at the top end
You would be unwise to be too worried about the next year’s outlook for house prices when timing a purchase – you should be more concerned about how much you like a property and whether you can afford it in the long term.
But if you are hoping for a crash to make a home more affordable, you may be disappointed. Earlier this month the UK’s largest lenders, Nationwide and Halifax, predicted price falls in 2024, but Nationwide only a “low single-digit decline” and Halifax a drop between 2% and 4%. Any scheme that brings large numbers of first-time buyers back into the market is likely to prop up prices.
Neal Hudson, a housing market analyst at the consultancy BuiltPlace, steers clear of making a forecast but says he expects the market to be fragmented, with rises and falls depending on price point and location.
“[The outlook is] maybe not as negative as it was looking this time last year,” he says, thanks to falling inflation and the widening belief that interest rates have reached a peak.
“I think it will depend on local markets and what type of property you are looking for,” he says. “In the part of the market where people are after smaller homes, there is a lot of competition. For bigger, more expensive properties, there are more available. People can’t get the big mortgages that they were getting in the post-pandemic race for space and so those homes are not selling.” How much those properties cost depends on the market, he says. In London, it is homes above £5m that are not selling. In Bath, it is homes of £1m or more, and in other towns the upper limit may be much lower.
Hudson says the key driver for house prices will be the economy – if the UK goes into recession and people start to lose their jobs, then the market is likely to fall. If employment stays high, that might not happen. This, again, could play out at a local level, with areas with business investment experiencing price rises, and areas with high job losses having falls.
He points to data that shows rising interest rates have hit affordability, but not as hard as might have been expected. Figures for mortgage lenders suggest that people are able to spend 5% less than they were, rather than 15-20% as the rise in interest rates may have suggested. “Borrowers have offset that rise with a little bit of longer mortgage terms, but mainly by paying more each month.”
Currently, he says, first-time buyers are facing the problem of high house prices compounded by the highest interest rates in years, which mean the need for a large deposit.
March’s budget could, however, make life easier for some.
https://news.google.com/rss/articles/CBMiYWh0dHBzOi8vd3d3LnRoZWd1YXJkaWFuLmNvbS9tb25leS8yMDIzL2RlYy8zMC91ay1wcm9wZXJ0eS1tYXJrZXQtaG91c2UtcHJpY2VzLW1vcnRnYWdlLXJhdGVzLTIwMjTSAWFodHRwczovL2FtcC50aGVndWFyZGlhbi5jb20vbW9uZXkvMjAyMy9kZWMvMzAvdWstcHJvcGVydHktbWFya2V0LWhvdXNlLXByaWNlcy1tb3J0Z2FnZS1yYXRlcy0yMDI0?oc=5
2023-12-30 09:23:00Z
CBMiYWh0dHBzOi8vd3d3LnRoZWd1YXJkaWFuLmNvbS9tb25leS8yMDIzL2RlYy8zMC91ay1wcm9wZXJ0eS1tYXJrZXQtaG91c2UtcHJpY2VzLW1vcnRnYWdlLXJhdGVzLTIwMjTSAWFodHRwczovL2FtcC50aGVndWFyZGlhbi5jb20vbW9uZXkvMjAyMy9kZWMvMzAvdWstcHJvcGVydHktbWFya2V0LWhvdXNlLXByaWNlcy1tb3J0Z2FnZS1yYXRlcy0yMDI0
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