Bank of England decides on 2nd of November what happens to lending rates
After moving upwards 14-times, the Bank of England failed to increase the base rate when it last met in Sptember 2023, but will this Thursday see rates, rise, stay the same or fall? Given the housing market is moribund, agreed sales for the year are down by 20% and those with mortgages are feeling the economic pinch, which way will rates go.
Many economic advisors have stated that interest rates will peak at 5.75%, currently the rate is 5.25%, so it is possible a 25 point rise this week may follow. Inflation is still high, it has been chipped down a little, but the true cost of living is high. Fuel, food and utilities are all hyper expensive, and if the Bank of England want to tame inflation, dampening down the nation’s need to spend by ending the flow of cheap cash rates will need to rise.
Soon we have the autumn budget from Jeremy Hunt, later in November, who may have a few billion he can spread around in a pre-General Election giveaway, but will it be neutered if the Bank of England have raised interest rates prior.
With interest rates in the US at an extremely high level, the ongoing war in Ukraine and now the Hamas conflict, global hegemony which underpins economic stability seems in short supply. Add in the uncertainties around AI, the continuing amount of people losing their jobs, you soon see why 2023 is fast becoming a difficult year.
Historically, the housing market has always been a barometer of how well the economy is doing, well its sluggish nature and the woe of those mortgage lenders coming out of fixed deals and facing large hikes in their monthly repayments will further subdue the appetite to move home or trade up to a larger home.
Being on a cusp of a probable General Election year in 2024, and certainly a US election year also brings with it the unknown, if Labour does get in power how will it handle the economy amongst other things. The only knowns are that Andrew Bailey is the Governor of the Bank of England and has been since March 2020, and in March 2020 the base rate was 0.1%, and now it is 52.5 times higher, maybe there is a link here. Link or no link by this Thursday teatime we will know if we can afford to put another piece of coal on the fire for Christmas or not.
80% of local housing markets register annual price falls according to Zoopla
- 4 in 5 local housing markets in the UK have registered year-on-year house price falls, although the scale of price falls is limited to below 5% in all markets
- Largest house price falls are concentrated in Southern England towns including Colchester (-3.5%), Canterbury (-3.4%) and Luton (-3.3%)
- The rise of the cash buyer continues. This group will account for 1 in 3 sales in 2023 as high mortgage rates hit buyer demand
- Modest house price falls over 2023 have not been enough to help reset affordability and support more sales. House prices are expected to fall to 2% over 2024 with faster growth in incomes steadily improving affordability.
- Zoopla expects the total number of home sales in 2024 to be the same as 2023 at 1m
PRESS RELEASE LONDON 30TH OCTOBER 2023: Zoopla’s latest House Price Index has revealed that house price falls are now more widespread across the country, with 4 in 5 local housing markets registering annual house price falls.
House price falls hit all English regions and Wales
The impact of higher mortgage rates and cost of living pressure is now impacting house prices across more local markets. Weaker demand and reduced buying power have resulted in a rapid cooling of house price growth from +9.2% a year ago to -1.1% today. This is the most dramatic slowdown in price growth since 2009. Previously concentrated in Southern England, house price falls are now impacting lower-value markets with 4 in 5 housing markets registering annual house price falls – this is up from 1 in 20 just six months ago.
The scale of house price falls is limited to low single digits with the largest annual falls registered in commuter towns around London and across the South East e.g. -3.5% in Colchester and -3.3% in Luton. Of the 1 in 5 markets registering annual house price growth, the highest growth rate is +3.6% in Halifax in Yorkshire.
Currently, the number of housing sales is feeling the impact of higher mortgage rates more than house prices – with a 23% reduction in housing sales in 2023 vs 2022. Zoopla anticipates housing transactions to stay flat at 1m in 2024, although this could improve if mortgage rates drop back towards 4% over the first half of 2024. This would support a modest rebound in activity in the first half of 2024 as people who have delayed moving decide to return to the market.
The rise of the cash buyer continues
First-time buyers are on track to be the largest buyer group in 2023, closely followed by cash buyers who will account for 1 in 3 sales in 2023. This is an increase from an average of 1 in 5 sales over the past 5 years. Many cash buyers have room to be more realistic on price as they are also mortgage-free sellers who have lived in their homes for many years. Their realistic outlook on pricing will also support the number of transactions in 2024. Looking to 2024, cash buyers will remain an important buyer group alongside first-time buyers who will continue to be pushed into buying by the continued, rapid growth in rents.
Upsizers are the group most sensitive to higher mortgage rates as they tend to buy bigger homes which require larger mortgages. The risks of big price falls are abating as a reason not to move but higher mortgage rates remain the most important factor. Lower mortgage rates would bring more upsizers in the market in 2024 and support overall sales volumes. With mortgage rates looking like they will stay higher for longer, upsizers need to be more flexible and what they want to buy and where to unlock that next move.
Andrew Stanton is the founder and CEO of Proptech-PR, a consultancy for Founders of Proptechs looking to grow and exit, using his influence from decades of industry experience. Separately he is a consultant to some of the biggest names in global real estate, advising on sales and acquisitions, market positioning, and operations. He is also the founder and editor of Proptech-X Proptech & Property News, where his insights, connections and detailed analysis and commentary on proptech and real estate are second to none.