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The UK housing market had a rollercoaster ride last year: house prices hit record levels and the Bank of England’s base lending rate increased nine times in the 12 months to December 2022, rising from 0.25 per cent to 3.5 per cent.

It created a lull in market activity and put the brakes on property prices.

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So, what next? Optimists argue that a crash will not happen with current mortgage rates predicted to fall by up to 25 per cent this year. They also point to big lenders such as HSBC, Barclays, Lloyds and Natwest agreeing forbearance measures to help struggling borrowers: switching them to interest-only or competitive fixed rate deals.

Schroders research shows that average UK house prices are more than eight times average earnings; in London, that ratio rises to 11 times. Such stories make good headlines, but the economic mood is gradually changing – from general gloom to a more nuanced outlook.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

Market positives

Notably, the shift in economic sentiment is reflected by reduced rates for new two and five-year fixed mortgages: after spiking to 6.5 per cent last October, they have since fallen back towards the five per cent mark and below.

For potential buyers, interest rates are critical because they directly affect both affordability and lenders’ willingness to lend. After a decade of low interest rates, recent sharp swings have been unsettling.

Assorted lenders – Santander, Barclays, Nationwide and Halifax – now forecast imminent rate reductions to average around 4.5 per cent. Unusually, this comes as the base rate is anticipated to reach four per cent this week.

Mortgage rate cuts by big commercial lenders make the market more attractive and more affordable for domestic and first-time buyers – not just to overseas or cash buyers as happened when rates hit their recent highs. Despite media hype about reducing their mortgage lending, banks still have the appetite to lend.

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A sense of calm

After last year’s shocks, calm has returned. Much has been digested by the market, including the ‘new normal’ in interest rates.

Potential increases are now factored into people’s thinking, so industry professionals can advise with greater confidence on where rates may head next.

Whenever the UK housing market is reportedly ‘down’, history shows it is never ‘out’. Buyers with available funding should press ahead on properties they really want. Good housing stock is not always available: in busier markets, people often lose out because of increased competition. Only those who are not yet able to buy should be waiting.

One caveat arises: UK incomes need to increase in real terms to boost domestic buyers’ purchasing power.

Without that, the market may still remain more attractive to overseas and cash buyers.

By Goli-Michelle Banan

Source: Mortgage Solutions

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