Where the property market stands after the Bank of England rate increase

House prices are falling at their fastest annual rate for three years, and the Bank of England has just raised interest rates to 4%. Here’s what it means if you’re buying, selling or remortgaging.

UK house prices are now 1.2% lower than a year ago, the biggest annual fall since October 2023. London and the south are falling fastest, while some areas in the North are still rising.

A day earlier, the Bank of England raised interest rates to 4% after an 8-1 vote, its first rise since August 2023. With inflation (especially in the energy market) expected to run hot into the new year, economic analysts such as the BBC’s Faisal Islam expect another rise, possibly in February. A major factor here will be ongoing global conflicts, especially in the Middle East. However, recent changes In the US political outlook may put pressure on for a swift conclusion in Iran, which could have a rapid deflationary effect on energy prices. On the down side, the UK energy price cap is now likely to rise by a minimum of 16% in January.

Are we looking at a sustained slowdown in the market?

In summary… not necessarily. Despite the glum outlook, commentators see positive signs. For example:

• RICS doesn’t expect a sustained fall in prices, because wages are rising faster than house prices.
• Savills feels that most homeowners have already adjusted to higher rates, and sees the jobs market as holding up. Its 5-year forecast is for house price growth of 15.8%.
• There may be bargains out there. Knight Frank found that homes exchanging in Q3 sold for an average of 91% of the initial asking price, with agents reporting discounts as big as 26% on small flats, new builds and former buy-to-lets. As a result, you can negotiate harder, especially in the south and on flats. Landlord tax changes announced in the budget may see a glut of BTL properties come on the market, further depressing prices.
• If the market stays sluggish, first-time buyers should lead the recovery. The existing First Homes scheme and the new Your First Home scheme offer different (but significant) government incentives to buy from selected developers. The knock-on effect may be delayed as they are restricted to new homes, but ultimately there will be more buyers and sellers in the market.

My own feelings on mortgage rates – surprisingly relaxed?

There are some factors that, even now, are pushing fixed rates down, so it is vital to speak to your mortgage broker before jumping to conclusions about the deals on offer. I am surprisingly relaxed about the rate situation, for now at least, for the these reasons:

This rise was already priced in

Most lenders expected this rate rise last month and have priced it in already. Consequently, there has been no major rush to put up rates this week across our lending panel.

In fact, while tracker mortgages have obviously gone up, I have seen many high-street lenders actually lowering rates on fixed-term deals this week. This would seem to contradict the prevailing winds. This is also partly explained by:

Swap rate fluctuations

As per our explanation of how mortgage rates are set independently of the Bank of England, most lenders raise capital on the “Swaps” market. This market spiked in September, and many lenders were over-cautious as to how heavy to load their mortgage rates in response – they are now correcting by trimming their rates back.

Seasonality and competition

Every lender sets annual targets for lending volumes, and those that have “books to fill” will be looking to secure business with attractive rates as the calendar year comes to an end. Also please don’t forget that, even in this climate, lenders are competing to get your business. Freelancer Financials has access to senior underwriting teams and our brokers can often negotiate better terms for you, so contact us to review your options.

Remortgaging? It’s worth looking early

If your fixed-rate deal is ending soon, you can secure a remortgage rate up to six months ahead with our Rate Monitoring Service. If rates go up, you’ll stay on the lowest rate available to you in that time. If they go down, you’ll get the benefit of the lower rate – it’s a win-win. Register here.

Conclusion

In times like these you need a seasoned mortgage broker on your side. Whether you are a first-time buyer, home mover or remortgaging, you can rely on our expert team to advise you in this choppy market. Contact us here, we look forward to speaking to you.