In the UK, house prices are set to increase at a moderate pace in 2024
Average mortgage prices are higher because of increased mortgage rates.
Financial markets predict the BoE will drop interest rates mid-year, possibly by 0.5%.
Inflation decreased from January to February 2024 but is still on the rise.
Mortgage advisers face an interesting year while the UK and the rest of the world face the cost-of-living crisis. While interest rates in 2024 are lower than last year's peak, it's becoming increasingly more challenging for people to balance the financial burdens of home ownership and paying for goods and services. While there may be some reprieve with a potential interest rate drop later in the year, inflation in 2024 will boost the price of goods and services.
Looking at UK house price averages over recent years, you'll note a significant increase, especially since 2019. But, when you zoom in and look at house price trends, you'll see that in 2022 and 2023, average house prices dropped fractionally.
The chart below shows the general upward trend of average house prices in the UK from 2005 to 2023:
Source: Office for National Statistics
For example, between January 2019 and January 2022, the average house price rose from £228,314 to £272,738, driven by historically low interest rates, soaring demand, and constrained housing supply. Prices peaked in September 2022, hitting a high of £291,716 before beginning to drop.
COVID-19-related income loss and annual inflation (13.8% in July 2022) led to house price averages falling. In December 2022, the average for UK house prices was at £288,744, but by December 2023, that figure sat at an estimated £284,691.
Looking at projected trends, average house prices in 2024 are set to increase at a moderate pace. However, factors like government policies, economic stability, and global events will undoubtedly shape the trajectory of house prices.
Over the years, mortgage prices have fluctuated due to various factors. Historically, low interest rates fuelled borrowing, while market conditions and regulatory changes also played significant roles.
For instance, in 2021, the average interest rate for a two-year fixed-rate mortgage was around 1.56%, but by 2023, it had risen to 4.74%. After a spike in July 2023, the March 2024 mortgage rate average for 2-year fixed-rate bonds is 5.75%.
This means that homeowners' monthly mortgage repayments could rise by more than £500 when their lower-interest fixed-rate deals end. Furthermore, a fifth of those homeowners will likely see an increase of over £1,000 monthly in mortgage repayments.
The impact of such an increase could be detrimental to some households, which is something that best mortgage advisers will consider. However, recent regulatory changes allow UK homeowners to apply for a concession on their mortgage repayments, meaning lenders must accommodate them (within reason).
The current interest rate in 2024 is 5.25%, which has remained stable for three consecutive months to combat inflation. However, financial markets predict the Bank of England will announce a rate drop in mid-2024, potentially resulting in a drop in mortgage prices and monthly repayments.
Furthermore, according to XTB, financial markets predict that by the end of 2024, the Bank of England will lower interest rates in 2024 by 1% to 4.25%. By the end of 2025, they expect it to be even lower.
Should these interest rate drops happen, those with variable mortgages can anticipate immediate financial relief on monthly repayments. However, those with recently acquired fixed-term mortgages will not enjoy the immediate benefits of a lowered interest rate on their monthly repayments.
Given the typically inverse relationship between interest rates and inflation, if the Bank of England does drop the interest rate mid-year, the rate of inflation in 2024 will increase. While this may offer some respite in repaying mortgage instalments, purchase prices for products and services will likely rise faster.
Between February 2023 and February 2024, the UK saw the Consumer Price Index, including owner occupiers' housing costs (CPIH), rise by 3.8%. However, this is down from 4.2% in January 2024, meaning that the price of consumer goods is growing slower than before.
The Consumer Price Index (CPI) alone saw an increase of 3.4% between February 2023 and February 2024, also lower than the 4.0% increase in January.
Motor fuels, housing, and household services made the largest upward contributions to the recent change in CPIH and CPI annual rates. In contrast, food, cafés, and restaurants made the largest downward contributions.
Here are some more comparisons for the 12 months from February 2023 to February 2024:
Core CPIH rose by 4.8% (excludes energy, food, alcohol, and tobacco)
CPIH goods annual rate slowed from 1.8% to 1.1%
CPIH services annual rate slowed from 6.1% to 6.0%
Core CPI rose by 4.5% (excluding energy, food, alcohol, and tobacco)
CPI goods annual rate slowed from 1.8% to 1.1%
CPI services annual rate slowed from 6.5% to 6.1%
Mortgage advisers have their work cut out for them in 2024 with moderate house price increases and high mortgage prices in the UK. However, the anticipated interest rate decrease will relieve some homeowners, but not necessarily those coming out of fixed-term periods.
As a mortgage adviser, you must keep a keen eye on current trends and economic forecasts, especially since mortgages are huge financial commitments during economic crises.
With Unbiased Pro, you'll receive the support and regulatory expertise you need to serve the clients you’re matched with.
