The base rate falls and home buyers return!
- April 2024 saw the worst-ever sales volume of 23,356, down 43% from the previous year.
- House prices are flat but close to record highs at £300,479; only 2% from the previous year.
- Inflation increases to 2.2%, and the Base Rate fell to 5%.
- Mortgage rates to stay in and around 4-4.5% for the rest of 2024.
- Properties for sale have hit their highest level in seven years.
- Propertymark report "the number of market appraisals conducted per member branch increased from 22 in March 2024 to 26 in April 2024"
Are tax-hike fears dampening the property market?
After all the hype of the general election, the rest of July had the housing market waiting for some glimmer of hope from the Labour Government. However, what it got was the worry of tax increases in the budget, an increase in inflation, and fear of what Labour would do with incoming legislation. It is too early for the impact of any change in confidence, but the historical growth in the 4 months after a general election may be dampened under the budget cloud of what Kier Starmer is stating will be 'painful' for the nation.
Mortgage rates have finally come down
August has brought the first Bank of England (BOE) base rate cut to 5%, a level not seen since July 2023. Mortgage lenders have already started announcing reductions in their variable and tracker mortgage rates following the announcement. The general feeling of mortgage brokers and analysts believe that the Bank Rate reduction will help to release pent-up demand in the property market. A poll of estate agents commissioned by RICS echoes this as the majority of agents expect to sell more houses over the next three months than they are currently.
First-time buyers spend more than 1/3 of their income on mortgage payments
Even though the fall in the base rate opens up the opportunity for a cheaper and more affordable mortgage products, high mortgage rates and affordability issues continue to challenge prospective homeowners. According to the Nationwide Building Society, First-time buyers spend around 37% of their income on mortgage payments, up from 28% pre-Covid.
House prices growing at fastest pace in 20 months
Nationwide also stated that house price growth accelerated to 2.1% in July, the fastest pace since December 2022. The average house price rose to £266,334, with increased wages boosting confidence among potential buyers. Halifax reported similar increases, stating that a typical property cost £291,268 in July, up just under one per cent compared to the previous month.
Wage increases outpace inflation
Robert Gardner, Nationwide's Chief Economist, attributed part of the growth to weak growth in the previous year and real wage increases outpacing inflation. He also noted that while a 0.25% point reduction in the base rate could help lower borrowing costs, the impact might be limited since fixed-rate mortgage pricing already factors in expected future rate declines.
Supply and demand on the rise
Rightmove is seeing a much more exciting picture as they report figures showing the number of potential buyers contacting estate agents about homes for sale since the 1st of August, jumping by nearly 19% compared to the same period a year ago. Zoopla is also reporting the number of properties for sale has hit its highest level in seven years, and buyer demand is rising. Any data showing confidence in buyers registering interest is good for the housing market and will flow through to completed purchases in the 3rd and 4th quarters of 2024.
Mortgage arrears remain unchanged in 2nd Quarter of 2024
After 2 years of base rate increases, there is pressure on those coming out of the low fixed-rate mortgage products. In the most recent data reported by UK Finance, the new mortgage arrears and possessions data show that the number of homeowner mortgages in arrears was broadly unchanged in the second quarter of 2024 compared to the first. It is suggested this is linked to mortgage lenders continuing to offer tailored support to anyone struggling with their mortgage payments.
The number of homes repossessed increased, largely due to the courts working through historic arrears cases. Repossession figures remain low compared with historic figures. Separate figures from the Ministry of Justice showed an increase in the number of mortgage possession claims. However, these were also well below the peak of the global financial crisis.
Will there be another base rate fall?
On the 1st of August, the Bank of England (BoE) reduced the base rate by 0.25 percentage points to 5%, the first cut in more than 4 years. However, Governor Andrew Bailey suggested that interest rates are unlikely to fall rapidly in the coming months.
Even though Labour may claim that the fall in the base rate was due to the confidence they are bringing, the truth is that it is more likely the plan the Bank of England has put into place. A plan that is likely needed to be updated in light of the fall in the base rate wasn't because of the change in the governing party but is in line with the planned reduction based on the inflation forecasts to account for a stronger pound and rising natural gas prices.
The Inflation rate rose for the first time in 18 months, to 2.2%, which was widely predicted due to gas and electricity prices falling by less than they did a year before. Some economists feel the base rate will need to go up again to combat these changes in inflation before it can come down again. The static low rate of 2007-2022 will be a thing of the past for as long as the economy remains volatile.
Will mortgage rates go down in 2024?
In a recent Zoopla article, Nic Hopkirk suggests mortgage rates will stay at and around 4-4.5% for the rest of 2024 and the base rate will likely fall to 3.5% by the end of 2025.
New Build prices hit record high
The average price of a new build in England and Wales rose to £415,086 in April, up 17% on last year and setting a new record high. Buying a new build costs £110,000 more than an average-priced property.
Lowest sales volume for April
London 
London has the lowest sales volume for April, since records began; achieving just 2,421 sales, 40% down on the previous year's 4,057. Even after the financial crash of 2008, sales in December only fell to 4,505. For more on London, read: London Housing Market Report.
Average house prices in London fell year on year by 1%, to £517,017, for June 2024.
England & Wales
England and Wales echo London with a 43% fall year on year, making April the worst on record at 23,356 property sales. Sales volume will increase in the coming months as the the increased activity in the market following the base rate fall will unleash the pent-up demand.
Are UK house prices falling?
Average house prices in England & Wales rose year on year by 2% to £300,479 for June 2024. Nationwide Building Society reported house price growth accelerated to 2.1% in July, the fastest pace since December 2022.
Household bills increase for the poorest
The Institute for Fiscal Studies (IFS) found the UK’s poorest households saw the bill for their weekly shopping rise far more than that of the rich during the rise in the cost of living, as the sharpest price increases fell on cheaper brands. The research found that the least well-off households had been hardest hit by “cheapflation” in the 2021-23 period, paying 29.1% more for their food compared with 23.5% for better-off households.
The IFS said the higher prices would add around £100 to the annual shopping basket cost for households with the lowest 25% of incomes, compared to if their inflation rate was the same as richer households.
Mortgage approval reports
Home buyers
Mortgage approvals for home buyers grew in June to 59,976, up by 12% on last year. The market is growing in confidence and the properties being secured in 2024 will start showing in the sales volume once completions take place.
Remortgages
The remortgage growth was less confident than for home buyers, with a 30% YOY fall to 27,514 mortgage approvals. I predict there are many home owners unable to afford now their fixed rate has ended and they are on a variable rate relative to the base rate. If they can't afford to remortgage on a new fixed rate deal either, they will be trapped in mortgages they're struggling to pay, until the rates become more reasonable at the end of next year, or they're forced to sell.
Mortgage repayments cost more for first-time buyers in 2024
Rightmove reported that First-time buyers’ monthly mortgage repayments have increased by 61% over the past five years. A FTB would pay £667 in 2019 versus £1,075 a month in 2023.
Increases in mortgage interest rates have also meant a first-time buyer taking out a five-year fixed-rate mortgage, spread over 25 years and at an 80 per cent loan-to-value ratio, could previously have secured a mortgage rate of 2.24 per cent and is now likely to be at 5.09 per cent.
New Builds - Started Versus Completed
CEO and Author | SAM Conveyancing
Housing Market Opinion
The base rate finally falls; however, don't expect an affordability miracle. The fall will only help a few, with many buyers and homeowners unable to pass affordability checks whilst mortgage rates remain high.
Gone are the days of a rigid base rate stuck below 1% for year on year. We should expect regular tweaks up and down over the next few years, with the the base rate settling on or around 3.5% by the end of 2025.
For now, the good news is that buyers are returning to the market and this gives hope that the end of 2024 will be strong in comparison to recent years of falling property sales.
Sources: Latest data from - Gov.UK, Bank of England, UK House Price Index, ONS and Property Mark (NAEA).
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
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