James Keable, Head of Capital Private Finance, looks at what the mortgage and housing markets might have in store for us in 2024.
As we approach 2024, the UK mortgage and house buying landscape is poised for potential transformations. A key factor shaping this landscape is the trajectory of mortgage rates, closely tied to the decisions of the Bank of England. This article reviews how the residential housing, buy-to-let and investment property markets could behave in the coming year.
Prospects for Mortgage Rates in 2024
The direction of mortgage rates in the UK is influenced by a multitude of factors including economic indicators, inflation rates, and global economic conditions. In historical terms, mortgage rates in 2023 have not been high, although compared to the last few years prior to the end of 2022 they may be seen as punitive. However, predicting the exact trajectory for 2024 requires some analysis.
The Bank of England holds the authority to set the base rate, which serves as a benchmark for various interest rates, including those for mortgages. The prevailing sentiment among economists suggests that the era of historically low interest rates may now be over. However, predicting specific movements in mortgage rates involves considering multiple variables and external uncertainties.
→ Will Mortgage Rates Continue to Reduce?
We will likely continue to see a gradual reduction of mortgage rates in 2024, however it is important to note that rates are influenced by a delicate balance of economic factors. If economic conditions are more favourable, with lowering inflation and steady growth, there may be room for the Bank of England to deliver more accommodative monetary policies, potentially resulting in more competitive mortgage rates. However, global economic shifts, geopolitical events, and inflationary pressures are all variables that could impact this trajectory.
→ When Will the Bank of England Reduce Rates?
Predicting the precise timing of rate adjustments by the Bank of England is challenging due to the dynamic nature of economic conditions. Central banks typically respond to changes in inflation, employment, and overall economic performance. As of now, the Bank of England has signalled a cautious approach, aiming to balance economic growth with inflation management.
If economic indicators suggest the need for further stimulus, the Bank of England may consider reducing rates. However, this decision will be contingent on the evolving economic landscape, and it's crucial for stakeholders in the housing market to monitor official communications and economic data for insights into the central bank's intentions. The money markets are pricing in reductions from mid-next year, but the Bank of England is keen to show a more cautious view, fearing inflation may be more deeply embedded. Markets might win out and rates could come down by the half-year point.
→ Impact on the Residential Housing Market
The trajectory of mortgage rates plays a crucial role in shaping the dynamics of the residential housing market. Lower mortgage rates generally stimulate demand by making homeownership more affordable, while higher rates can cool demand. In 2024, the impact on the residential housing market will hinge on the delicate balance between interest rates, economic conditions, and government policies.
If mortgage rates continue to reduce or remain competitive, it could fuel demand for housing, potentially driving property prices upward and I believe there is a good chance of this in the second half of 2024.
The availability of housing inventory, regional economic conditions, and government initiatives to promote affordable housing will also be influential factors.
→ Impact on the Buy-to-Let and Investment Property Market
The buy-to-let and investment property market is equally sensitive to interest rate fluctuations, and changes in mortgage rates can impact the overall feasibility and profitability of property investment. If mortgage rates continue to decrease, it could make financing more affordable for property investors, potentially boosting activity in the buy-to-let market.
Government policy, such as tax policies and rental market regulations, will play a role in shaping the landscape for property investors. Investors need to keep a close eye on both interest rate trends and regulatory developments to make informed decisions in the buy-to-let and investment property space.
My view is that 2024, after a steady start, will see significant improvements in the housing market, driven by strong competition from lenders in the first half of the year and consolidated by the Bank of England base rate cuts in the second half. This will lead to more upward pressure on house prices and the start of another positive housing cycle. Now could be a very good time to buy!
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