Housing market sparks to life with base rate cut coming soon
- SAM Conveyancing sees a 19% increase in the housing market in February 2024.
- October 2023 saw the worst-ever sales volume of 39,145 for the month, 45% down on 2022.
- House prices remained close to record highs at £297,395 in England and Wales until December.
- Bank of England suggesting a cut to the base rate soon.
- Property Mark reports, "Stock levels down" and a "Reduction in prospective buyer numbers".
- Growing private sector suggests we are out of recession.
- Mortgage lenders are increasing mortgage rates after a surge of mortgage approvals in December.
- The price cap, which sets a maximum rate per unit that customers can charge for their energy use, will fall by 12.3% on the previous quarter from 1st April to 30th June 2024.
- Read our local housing market reports for - London, Kent, Hampshire, West Midlands, Essex and West Yorkshire.
The mini-housing bubble we reported in our January Housing Market Report has kept momentum into February. So much so, that mortgage lenders are increasing their mortgage rates instead of decreasing, ahead of the eagerly anticipated Bank of England base rate drop.
Whether the rate increases are to slow down the spike in demand for mortgages, or to cover the lender's additional cost of sourcing more funds to meet the mortgage demand, the housing market will slow. HSBC, NatWest, Santander, Bank of Ireland, and Virgin Money have reported upward changes in interest rates. Halifax for Intermediaries is bucking the trend by reducing selected mortgage deals. Fixed-rate deals will be reduced on the bank’s remortgage range for new customers, as well as on: purchase deals (including for first-time buyers), deals for larger loans (£2 million or more), new build loans, green mortgages, and affordable housing deals.
With this spark of life in the housing market, Rightmove reports that the prices of homes being put up for sale have risen annually for the first time in six months. Asking prices for homes rose 0.1 per cent in February compared with a year earlier, the first such increase since August 2023. Monthly, prices increased by 0.9 per cent from January.
In and out of recession
S&P Global UK reported the private sector has recorded its best performance in nine months, offering hope that the recession has quickly ended after we entered into it at the end of 2023. February marks the fourth consecutive month of rising output, with the index moving from 52.9 to 53.3. The current reading is its highest since May last year.
With a recession and the highest mortgage rate for 15 years, it is unsurprising that June, July and October 2023 saw a record low for sales volume.
When will the base rate fall in 2024?
While many reports suggest that the base rate will be cut in the summer; I foresee a much earlier reduction in the March meeting at the Bank of England. Former Bank of England chief economist Andy Haldane has said the Bank could risk worsening the UK’s recession unless it soon cuts interest rates.
The Bank of England states they might begin cutting rates before inflation reaches its two per cent target. The governor, Andrew Bailey, said as he pointed to “encouraging signs” that price pressures were easing. He said he couldn’t comment on when rates may be cut but that the market expectations of a cut this year were not “unreasonable”.
Mr Bailey added inflation had “come down very rapidly”, that the UK recession may already be over, and there are now "distinct signs of an upturn" in the economy.
Lowest sales volume for October
London 
London has the lowest sales volume for October since records began, achieving just 4,194 sales, 47% down on the previous year's 7,970. The severe shortage of properties to buy in London and the high mortgage rates have caused house prices to fall. We haven't seen sales volume this low for October since 2008's financial crash.
Average house prices in London fell year on year by 5%, to £508,037, for December 2023.
England & Wales
England and Wales echo London with a 45% fall year on year, making October the worst on record at 39,145 property sales. We now know the economy slipped into recession during this time, while mortgage interest rates were high; so, expect to see volume increases from November onward as Land Registry data is released.
Average house prices in England & Wales fell year on year by 2% to £297,395 for December 2023.
Mortgage reports
Home buyers
Mortgage approvals for home buyers rose drastically in December 2023 to 50,459, 26% higher than last year. The highest year-on-year growth since 2021, post-Covid. The mini-bubble came back to the market en masse; which, in my opinion, is why mortgage lenders have increased their mortgage rates.
The base rate is set to come down, and there's high demand. Why increase mortgage rates?
Banks budget for how much money they need to offer mortgages and then source those funds from other markets. For example, they may budget £500 million to service their mortgage demand. Since November, the demand has been higher than they budgeted, for example, £700 million. This means the banks need to source more money to meet demand and may also have to pay a higher rate for that money. The banks increase the interest rates on their mortgage products to re-coop the cost and/or slow down the demand.
Banks that reduce mortgage rates have surplus mortgage reserves and want more of the mortgage market.
Remortgages
We finally see growth in the remortgage market, with 30,833 mortgages approved, up 15% on last year. This sudden increase over Christmas could also have contributed to the mortgage rates going up.
Mortgage lending to older borrowers falls
UK Finance reported that the number of new mortgages taken out by borrowers over 55 fell by 37 per cent year-on-year. The value of this lending was £4.1 billion, down 42 per cent. The cause is linked to the high mortgage rates and the affordability squeeze for over-55s.
Hope for First-time buyers
as chancellor draws up plans for a 99% mortgage guarantee scheme
In the Spring budget on the 6th March, the Chancellor Jeremy Hunt plans to reveal a 99 per cent mortgage scheme, which would only require homebuyers to put down a one per cent deposit. The risk of such a scheme is it could mean buyers go into negative equity if there is a fall in house prices. Experts feel the plan needs to be supported by building new properties.
New properties cost more to buy than second-hand - see the graph below..
CEO and Author | SAM Conveyancing
After a dire end to 2023, January and February show a mini-bubble caused by the high mortgage rates at the end of last year which supressed new home buyers and movers and a subsequent rush to the market as rates fell last month. So much so, that mortgage lenders are now increasing their mortgage rates again, in a bid to slow down the market before an imminent drop in the base rate.
I don't think the higher rates will dampen the effects of the mini-bubble for home buyers, but it will slow the remortgage market as borrowers hold out for a better deal. This will improve in April; after, I predict, the base rate will have been reduced to 5% in the March review by the Bank of England.
The budget is going to have a lot of property news, and this is what I think is coming:
- Remove stamp duty up to £500,000 for anyone over 60 who is downsizing.
- Capital Gains Tax allowance reduced to £1,000 for 2024-25.
- 99% mortgage guarantee scheme for First-Time Buyers only.
These changes will create huge opportunities in the housing market in 2024.
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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