As a homeowner myself, it’s natural that I’ve taken a keen interest in what 2024 might bring for the housing market, especially as I’m due to remortgage this year for the first time. In recent years, we’ve said goodbye to the lower rate mortgages and the mortgage market has seen an increase in the average rate. The high-interest rates have led to monthly repayments increasing and with many homeowners unable to secure an affordable new deal, some have had to downsize their homes or really struggle to pay thanks to the higher rates on fixed-rate mortgage deals.
So, let’s delve into the projections and potential shifts we might see in the UK housing market in 2024, particularly focusing on mortgage rates and house prices.
This post is not financial advice and you should always speak to a mortgage advisor or financial advisor before making any decisions regarding your mortgage or finances.
A Look Back at the Housing Market
Before we look into the forecasts for 2024, it’s crucial to understand the story so far. The year 2023 was a rollercoaster for the housing market, with mortgage rates fluctuating wildly due to various economic factors in the past year. This volatility led to the average two-year fixed rate reaching an unprecedented 6.86% in July.
However, the tide has turned recently, and rates have started to ease. As of December 2023, the average two-year fixed deal stands at 5.95%, while the average five-year fixed deal is at 5.57%. These reductions have been brought about thanks to falling inflation rates and speculation that the Bank of England (BoE) might cut interest rates as early as spring 2024 (I hope!).
The Key Players
To understand the dynamics of the housing market, it’s crucial to understand the key players involved:
- The Bank of England (BoE): The BoE plays a pivotal role in setting the base interest rate, which significantly influences mortgage rates. The BoE’s Monetary Policy Committee (MPC) has a mandate to keep inflation around 2%.
- Mortgage Lenders: Banks and building societies adjust their mortgage rates based on the BoE’s base rate and their own funding costs. They also consider factors such as competition, risk appetite, and market demand.
- Financial Markets: The financial markets’ perceptions of future interest rates (known as ‘swap rates’) also influence mortgage rates.
Inflation and Interest Rates
Inflation and interest rates share a complex relationship. High inflation often leads to higher interest rates, as central banks attempt to cool down the economy and reduce the inflation rate. Conversely, lower inflation can lead to lower interest rates.
In the UK, inflation reached a peak of 11.1% in October 2022, prompting the BoE to hike interest rates aggressively. The base rate was increased 14 times in a row to a 15-year high of 5.25% in September 2023. However, inflation has since cooled down to 3.9%, and this downward trend is expected to continue in 2024.
Mortgage Rate Predictions for 2024
As we look ahead to 2024, let’s explore the possible scenarios for mortgage rates:
A Continued Downward Trend
Given the falling inflation and anticipated cuts to the base rate, there is a strong possibility that mortgage rates will continue to decrease in 2024 as they have in recent months. Some market analysts predict that the average two-year fixed rate could dip below 5% by the end of 2024. This would indeed be good news for homeowners looking to remortgage and first-time buyers hoping to enter the housing market, though these levels are still high for those currently on lower rates. People could still end up with monthly payments increasing by hundreds of pounds.
However, it’s essential to remember that these projections are not set in stone and depend on a variety of economic and market factors.
The Impact of Global Events
Global events can influence financial markets and, in turn, affect mortgage rates. For instance, geopolitical tensions, such as the Russia-Ukraine conflict in 2023, led to a surge in energy prices worldwide and contributed to the inflationary pressures in the UK.
Therefore, while current trends suggest a decrease in mortgage rates, unforeseen global events could disrupt these predictions.
House Prices in 2024: What to Expect?
Alongside mortgage rates, house prices play a crucial role in the dynamics of the housing market. After reaching record highs, UK property prices have started to cool off. The Nationwide Building Society reported a 1.2% decline in house prices in the year to October 2023.
A Prospective Decline
Several forecasts suggest that house prices will continue to fall in 2024. The Office for Budget Responsibility predicts a 10% decline in house prices between 2023 and 2025. This downward trend in house prices, coupled with potentially lower mortgage rates, could create more opportunities for first-time buyers to get on the property ladder.
However, it’s essential to note that falling house prices could also lead to homeowners falling into negative equity, especially those who have recently bought a property with a small deposit. This means that the value of their property could be less than the mortgage they owe.
While current trends and predictions suggest a downward trajectory for both mortgage rates and house prices in 2024, it’s crucial to remember that these forecasts are subject to change based on various economic and market factors. Market conditions and the cost of borrowing can change quickly.
For homeowners like myself, the key is to stay informed and prepared. I’m overpaying my mortgage every month as well as have some high interest savings accounts put towards my next mortgage to bring down the monthly mortgage repayments. I’m no mortgage expert, so keep a close eye on the market trends and consider seeking advice from financial advisors or mortgage brokers to navigate the complexities of the housing market in 2024.
We’ll be contacting our mortgage advisor soon to discuss the options we have over the next few months. We are hoping we’ll be able to get some better deals in a few months and we’re also looking at moving to a larger house in a cheaper area, but that depends on home prices and what the property market means for the value of our current home.
Until then we’ll be keeping a close eye on UK mortgage predictions and hopefully can get a decent mortgage rate.