Mortgages and housing market on precipice of recovery

Despite prior difficulties, the economic landscape for borrowers and lenders is shifting, which may create the perfect storm for house buyers to make their move, according to Palmers Solicitors.

Related topics:  Property,  House Hunters,  Housing Market
Property | Reporter
30th November 2023
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"With inflation still falling and the Government urging “responsible” cuts where possible in the Chancellor’s Autumn Statement, it’s likely that the base rate will slowly start to fall as we enter 2024 and beyond"

When the rates of change for house prices reached a 15-year peak of 14.1 per cent in mid-2022, approval for a mortgage seemed out of reach for many buyers.

However, opportunities for borrowers look set on a road to recovery as house prices now start to fall and the base rate stabilises. New Government policies are putting more money into individuals’ pockets and cost of living pressures are slowly easing.

Although the mortgage market is likely to depend upon responsible borrowing and lending in the coming months, wider economic recovery is likely to tip the housing market onto the side of success.

A year of highs and lows

With economic uncertainty, employment in hard-hit sectors suffering, the cost of living chipping away at individual saving pots and rising prices, many borrowers were forced to put off buying between 2021 and 2022.

Compounding factors that put borrowers off seeking a mortgage was a rapidly climbing base rate, going from 0.1 per cent in December 2021 to 5.25 per cent in August 2023 – in a bid to control spiralling inflation.

Many borrowers could simply not afford mortgage repayments. Lenders, however, have a more complicated relationship with high-interest rates.

While increasing interest on repayment can bring about higher profits and rewards for the risk of lending, when rates climb too high, there is the potential that borrowers will default on their payments or stop seeking loans altogether.

Overall, the economic landscape until recently painted a grim picture for buyers and those looking to remortgage.

Looking up and looking forward

For the first time in nearly two years, the Bank of England did not raise the base rate in October this year, as inflation finally comes under control at less than half of what it was at the start of 2023.

This stability is good news for borrowers and lenders, with many home-buyers more confident that they can manage repayments long-term, and lenders reassured that they won’t lose out if borrowers default on payments.

Furthermore, with inflation still falling and the Government urging “responsible” cuts where possible in the Chancellor’s Autumn Statement, it’s likely that the base rate will slowly start to fall as we enter 2024 and beyond.

The base rate directly impacts the interest paid on mortgage payments, so this is likely to reduce mortgage payments in the long term.

Additionally, the price of houses – already falling slightly – seems likely to drop further.

The UK’s largest mortgage lender, Lloyds Banking Group, has predicted a 2.4 per cent fall in house prices in 2024, with Santander predicting a similar two per cent.

News from Nationwide, the world's largest building society, is that it will move its average rate to below 4.5 per cent for the first time since June 2023.

With reduced overall payments, a lower base rate and initial house price are likely to make mortgages an affordable option for some who have been excluded from the market in the last few years.

Considering remortgaging?

Those who have secured a mortgage at a high rate of interest in the past 18 months may well seek to renegotiate the level of interest they pay through remortgaging.

With care, remortgaging can pay off. Borrowers can potentially achieve much lower rates and find themselves materially much better off each month, despite not taking on any extra debt.

However, speed is of the essence, because mortgage rates can increase again rapidly, whether due to the base rate or other factors which affect overall economic confidence.

To successfully remortgage, borrowers will need to negotiate with their lender and do so within a short timeframe.

An efficient conveyancer is critical in the case of remortgaging, to help borrowers to act quickly and secure a better rate as soon as possible.

Moving with care

Things are certainly looking up, but this still means that borrowers and lenders will need to act responsibly in the coming months to avoid financial and legal difficulties.

The Office for Budget Responsibility predicted in November 2023 that the average mortgage rate would miss its target of four per cent from earlier in the year – although significant progress will still be made, with the rate likely to be only slightly higher at five per cent.

Inflation is also falling slower than expected – not predicted to hit the Bank of England’s target of 2 per cent until 2025. However, it is still falling, a key sign that opportunities for buyers are on the way.

This marked slowdown in the fall in inflation could make the BoE cautious over changing the base rate, in turn making banks more wary of reducing their own rates.

What this reveals in broader terms is that the housing market is recovering from the uncertainty of 2022, but it may be slightly slower than anticipated, with caution being the word of the day.

The wind in the sales

Falling house prices, stable interest rates and an overall improvement to personal financial health with higher wages, the recent National Insurance cut for employees and dropping inflation, all point towards one thing: sales of houses are likely to increase significantly.

This is particularly true of areas with a relatively large supply of properties, but where demand has been curtailed by the cost of living and rising interest rates.

The mortgage market is also likely to see a shift in demand towards products with an initial fixed term, to give consumers the opportunity to secure stability for as long as possible.

As a result, housing sales are likely to become more of a negotiation process than is already the case. Lenders and buyers will want to protect themselves and ensure that they achieve fair contractual terms that don’t leave anyone missing out.

The role of the solicitor in the mortgage process is likely to increase in line with that, as all parties seek advice from specialists with expert financial and legal knowledge.

Mortgage stability – is it enough?

With more people able to get a mortgage, afford to put down a deposit and pay lower or stable interest rates, the housing market should recover significantly.

For those who can afford minor – and temporary – discomfort, the mortgage sector looks to be moving in the right direction for consumers and for lenders, with stability returning and a nationwide focus on easing the pressure on individuals and families.

As the mortgage market progresses towards recovery, buyers and sellers typically need access to expert conveyancing and residential property services to help them achieve value and security throughout the process.

Consumers will still be looking to achieve favourable sales terms and a rapid, secure transfer of ownership. 

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