Buckle up because the second half of 2024 is shaping up to be a game-changer for the property market! We’ve all been waiting for some good news, and it looks like it’s finally here. The outlook for the housing market is turning from cautious optimism to outright excitement, and there are plenty of reasons to shout it from the rooftops.
Mortgage Rates Are Plummeting
Let’s start with the big news: swap rates, which are a key factor in determining fixed mortgage rates, continued their sharp decline last week. This drop comes on the heels of the Bank of England’s recent base rate cut, a move that has sent ripples of relief throughout the market. What does this mean for you? Major lenders, including heavyweights like HSBC, Barclays, and Halifax, have all broken the symbolic 4% barrier for mortgage rates. That’s right—multiple lenders are now offering mortgage rates that start with a three, a level we haven’t seen in quite some time.
This dramatic reduction in mortgage rates is not just a number on a page; it’s a catalyst that’s already starting to reignite demand in the housing market. The lower rates are making it more affordable for people to borrow money, which in turn is boosting confidence and encouraging more people to consider buying a home. If you’ve been on the fence about entering the market, now might be the perfect time to make your move.
Resilient House Prices and a Market in Transition
But that’s not all. Despite the ups and downs of the broader economy, house prices have remained remarkably resilient. According to Halifax, one of the UK’s largest mortgage lenders, house prices increased by a solid 0.8% in July alone. This brings the annual growth rate to an impressive 2.3%, the highest we’ve seen since January 2024. This steady rise in house prices is a clear sign that the market is far from cooling off.
In fact, we might be witnessing the early stages of a significant shift from a buyers’ market to a sellers’ market. For those unfamiliar, a buyers’ market is when there are more properties available than there are buyers, giving those looking to purchase a home the upper hand. On the flip side, a sellers’ market is when demand outstrips supply, allowing sellers to command higher prices. This transition is something we’ve been hinting at for weeks, but the latest data suggests it could be happening faster than anticipated.
If you’re a first-time buyer, this is especially important to consider. While it’s true that mortgage rates could potentially drop even further in the coming weeks and months, there’s a real possibility that house prices could start to rise at an even faster pace. If that happens, any savings you might gain from waiting for lower rates could be offset—or even eclipsed—by the higher cost of homes. The housing market is incredibly fluid right now, and timing could be everything.
The Inverse Relationship Between Rates and Prices
This brings us to an important point about the relationship between interest rates and house prices. Historically, there’s been an inverse relationship between the Bank of England’s base rate and the growth of house prices. In simpler terms, when interest rates go down, house prices tend to go up. This isn’t always an immediate effect, but it’s a trend that has held true in most cases.
Of course, there are exceptions. For example, during the Global Financial Crisis and the first COVID lockdown, interest rates were slashed, but house prices didn’t immediately soar because the economy was in turmoil. However, the current situation seems different. The UK’s economy is showing signs of strength. GDP growth in the first quarter of 2024 was 0.7%, making it the strongest quarter since 2019. Even more encouraging, the Bank of England has doubled its GDP forecast for the year, now expecting annualized GDP to reach 2% by the fourth quarter—an achievement not seen in over half a decade.
The Cost-of-Living Crisis and Wage Growth
Let’s not forget about the cost-of-living crisis, which has been a significant concern for many. There’s good news on this front as well. Inflation has finally fallen back to the Bank of England’s 2% target, and real wage growth is now positive. This is particularly important because wage growth is currently outpacing the rise in house prices. As a result, the average house price to earnings ratio has remained stable at 2019 levels, making homes more affordable relative to income than they have been in recent years.
This stability in the cost-of-living and positive wage growth are key factors that could support continued house price increases in the latter part of 2024. If inflation, particularly in the services sector, cools faster than expected, it could pave the way for even more rate cuts from the Bank of England. This would further stimulate the housing market, potentially leading to a surge in demand and a continued rise in property values.
Global Influences and Potential Rate Cuts
But the story doesn’t end within the UK’s borders. Across the pond, the US Federal Reserve is considering aggressive rate cuts to prevent the American economy from slipping into recession. Last week, interest rate futures were predicting a potential 1% reduction in US rates before the year is out. This is significant because the Bank of England often takes cues from the Fed. If the US central bank decides to slash rates, there’s a strong likelihood that the Bank of England will follow suit.
If this scenario plays out, we could see even more aggressive rate cuts in the UK, which would further fuel the housing market. Under such conditions, annualized house price growth in the UK could potentially climb to as high as 5% by the end of the year. This would represent a remarkable turnaround from the uncertainty and challenges that have characterized the market in recent years.
A Bright Future for the Property and Mortgage Markets
All in all, it’s starting to feel like the UK’s property and mortgage markets have turned a corner. The combination of falling mortgage rates, resilient house prices, a strengthening economy, and the possibility of further rate cuts are creating a perfect storm for growth. For buyers, sellers, and investors alike, the second half of 2024 could offer opportunities that haven’t been seen in years.
So, whether you’re looking to buy your first home, sell a property, or simply invest in the market, now is the time to pay close attention. The property market is on the move, and it looks like the best is yet to come.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
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Author:
Founder and mortgage and protection adviser in Albion Financial Advice
Dariusz Karpowicz is a seasoned adviser in the financial services industry. After gaining valuable experience working with an established broker, he founded his own practice, Albion Financial Advice. This firm is dedicated to assisting clients in acquiring properties and advising on various mortgage options. Born and raised in Gdańsk, Poland, Dariusz moved to the United Kingdom in 2006.
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