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Interest Rates in the UK: Unraveling Their Influence on the Real Estate Market in 2024

Interest Rates in the UK: Unraveling Their Influence on the Real Estate Market in 2024

The UK real estate market is always changing, and 2024 will be no exception. Prevailing interest rates will be the main driver of these changes. Leading mortgage lenders and industry analysts have recently revealed that interest rates have a significant impact on how real estate prices and market dynamics develop.

Real Estate Market Recap: 2023

Before delving into the statistical analysis, let's review the real estate market's performance in 2023. The year witnessed a somewhat resilient market, marked by a 1% decline in average property prices to £283,615. Get deeper insights into UK house prices in 2023.

The Overall Market Outlook

The largest mortgage lender in the UK, Halifax, projects that the average price of a property in the UK may drop by 2% to 4% in 2024 as a result of the impact of persistently high interest rates on mortgage affordability. Nationwide predicted a "low single-digit decline" in home prices for the same time period, which is in line with this estimate. Halifax predicts a partial market recovery as interest and mortgage rates decline, but Robert Gardner, Chief Economist at Nationwide, is cautious and believes a quick recovery is unlikely.

Affordability of Mortgages and Interest Rates

The ongoing high interest rates have significantly impacted mortgage affordability, resulting in a 25% fall in mortgage approvals and a 20% decrease in total sales completions, according to Halifax. Halifax states that within the past year, there has been a 25% fall in mortgage approvals and a 20% decrease in total sales completions. These figures represent the lowest levels in at least ten years. The market's dearth of competitive mortgage offers is the reason for this drop in activity.

Regional Differences in Home Prices

Different areas of the UK experience different effects of interest rates on home prices. Halifax claims that there is a "mixed picture" in the regional housing market. Property prices have dropped significantly by 5.7% in places like the southeast of England, but have increased by 2.3% in Northern Ireland.

Outlook for Mortgage Rates and Inflation

Halifax expects the home market to recover once inflation returns. The financial markets have priced in four quarter-point decreases to the Bank of England's existing base rate of 5.25% in 2024, according to the lender. This estimate is consistent with the headline UK inflation rate's recent drop from 6.7% in September to 4.6% in October. Consequently, mortgage rates have begun to decline; a standard five-year fixed 75% loan-to-value agreement is currently less than 5%.

Mortgage Rate Trends and Market Predictions

Looking ahead, mortgage experts foresee potential reductions in rates, with the new year possibly starting with a decrease. Rates for homebuyers with small deposits have already seen considerable improvement, down considerably from levels seen just a few months ago. With an expectation of more competitive rates in the coming months, the mortgage market is likely to witness increased activity as affordability gradually improves.

Mortgage Rates in 2024: EXPERT INSIGHTS

There has been conjecture on the course of mortgage rates in 2024 following the Bank of England's recent decision to keep the bank rate at 5.25%. Industry insiders offer a nuanced outlook on future developments.

UK Finance Sees Persistent Challenges

In its estimates for the mortgage and housing markets for 2024 and 2025, UK Finance recognizes persistent difficulties. The group predicts that although affordability challenges might not go away, improvements might start to show around 2025.

Capital Economics Projects a More Gentle Landing

Paul Dales, chief UK economist at Capital Economics, forecasts a more persistent economic slowdown and a shallower recession in 2024. Dales predicts more major interest rate decreases in 2025, possibly reaching 3%, despite forecasts that the Bank of England won't drop rates until late in the year.

Nationwide's Optimism Amidst Uncertainty

The chief economist of Nationwide, Robert Gardner, sees positive indicators for prospective purchasers in the small decline in mortgage rates. Despite this, he issues a warning, noting low consumer confidence and a decline in buyer inquiries, about anticipating a big comeback in activity or home prices in 2024.

Lloyds Banking Group's Rate Projections

Lloyds Bank, including Halifax, forecasts the bank rate to remain at 5.25% throughout 2024, with a modest drop to 5% by the fourth quarter of the year.

The Mortgage Rate Outlook from Rightmove

Rightmove, an online real estate marketplace, expects mortgage rates to remain high through 2024, potentially impacting the budgets of lower- and middle-class purchasers. Expects a Gradual Drop's head of sales and operations, Amanda Aumonier, predicts that mortgage rates will steadily drop in 2024. She argues that fixed rates may experience a reduction in reflecting market trends if the Bank of England decides to lower the Bank Rate in the latter part of the year.

London and Country Mortgages: Current Trends

David Hollingworth, associate director at London & Country Mortgages, notes that fixed rates have been falling, and the market may witness more reductions, potentially reaching around 4.25% to 4.75% for various fixed-rate terms.

House Prices in 2024: EXPERT INSIGHTS

Prominent organizations such as Nationwide, Halifax, Zoopla, and Rightmove have varying forecasts regarding property values in 2024. Forecasts range from modest increases to low single-digit reductions.

The Nationwide Cautionary Prediction

Robert Gardner, chief economist of Nationwide, projects that home values in 2024 will either see another slight decrease or will likely remain relatively flat, possibly in the range of minus 2% to zero. This is assuming that the economy continues to be weak and that mortgage rates progressively moderate.

Halifax's Perspective on Moderate Decline

Director at Halifax Mortgages Kim Kinnaird predicts modest downward pressure on home prices to persist, driven by increased interest rates in comparison to two years ago and challenges related to the cost of living.

Zoopla projects negative growth in home prices

Zoopla projects a 2% decrease in home prices by 2024 and a negative increase in house prices. The platform highlights the necessity for more modifications to housing prices in order to achieve a major reset in affordability.

Rightmove's Estimate for Listing Prices

The director of property science at Rightmove, Tim Bannister, projects a 1% decline in asking prices for new sellers by 2024. Family movers may relocate more frequently as a result of improved market stability, stable mortgage markets, and the belief that the Bank of England Bank Rate has peaked.

Remortgaging in 2024

The insights of the Financial Conduct Authority

According to data provided by the Financial Conduct Authority, approximately 1.5 million homeowners will have their fixed-rate mortgage agreements expire in 2024. Furthermore, by 2026, the Bank of England predicts that five million homeowners will pay higher monthly mortgage payments.

Possible rate surprises and encouragements

A more stable mortgage market in 2024 may result from the Bank of England's decision to maintain interest rates in December, even though borrowers moving from lower fixed-rate agreements may experience considerable rate shocks.

Amidst rate wars, opportunities abound.

Mortgage price wars may break out around the beginning of 2024 as lenders compete for new clients. In an effort to increase their mortgage book, lenders might provide more favorable rates, which would be advantageous to borrowers.

John Charcol's Optimism

Nick Mendes at broker John Charcol expresses optimism about lenders aggressively competing for business in the New Year. He suggests the possibility of more lenders offering sub-4.5% five-year fixed rates, providing borrowers with lower rates and increased certainty.

The Current Mortgage Rate Trends

Enhanced accessibility and declining rates

The number of residential mortgage deals that are now accessible has increased recently; as of December 11, there were 5,766 open options. This increase and a decrease in fixed rates indicate a more stable market.

Average rates as of December 2023

As of December 11, Moneyfacts data reveals that the average two-year fixed residential mortgage rate stands at 5.99%, while the average five-year fixed rate is 5.60%.

Strategies for Borrowers

In order to obtain competitive bargains, borrowers anticipating rising mortgage rates in 2024 can employ a number of techniques.

  • Using fee-free mortgage brokers can assist in locating the best offers.
  • Early preparation, credit score improvement, and investigating alternative mortgage arrangements can facilitate securing a cheaper rate.
  • By evaluating product transfer agreements against current market rates, borrowers can make well-informed choices.

The Way Ahead 

Forecasts for the Upcoming Five Years' Gradual Decline in Rates

Although long-term rate predictions are still difficult, experts anticipate a slow decline in rates in the upcoming years. The state of the market might make fixed rates less than 4% possible, which would provide borrowers with a more advantageous environment.

In Summary,

Interest rates, mortgage affordability, and market dynamics shape the forecast for the UK real estate market in 2024. The predictions, which have different expectations for home values, point to possible difficulties. The calculation becomes more difficult when one considers the effects of inflation and the changing mortgage rate environment. Borrowers can better manage the changing mortgage market by adopting proactive strategies, such as using fee-free mortgage brokers and making early plans, even in the face of increased rates. Although there are still uncertainties, there is hope that rates will gradually decline over the following few years, providing prospective homeowners with a better picture of the real estate market.


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