Despite High Borrowing Costs UK Property Market Resilient

Despite High Borrowing Costs UK Property Market Resilient
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9 May 2024 – The latest Halifax House Price Index reveals a 1.1% increase from last year, following a +0.4% annual rise back in March. 

The April report reveals that the average house price currently sits at £288,949, up by 0.1%. 

Rightmove shows that the current average mortgage rate for a five-year fixed rate mortgage is 5.02%. For many buyers, the high borrowing costs make homeownership an uphill battle. 

BOE interest cuts to be pushed back

One of the most pressing issues in the current property market is the struggle of many buyers to finance their home purchases. High mortgage costs are a significant barrier preventing them from entering the property market. 

Despite industry experts claiming a period of relative stability for asking prices, buyers still can’t take advantage of this opportunity.

The past few weeks alone have recorded an increase in mortgage rates due to expected interest cuts by the Bank of England becoming less likely. At the beginning of 2024, many analysts projected the first of many cuts to happen in June.

The Bank’s decision will be published by the end of the week. However, the rate is expected to remain constant at 5.25%. 

Market pricing currently sits at a roughly one-in-ten chance of an interest rate cut.

Inflation is the critical factor for the delay in cuts to the BOE’s key interest rate. As it’s not falling fast enough according to predictions, banks have had no choice but to push rates back up.

Data shows North-South divide in property prices

Halifax revealed that Northern Ireland saw the most considerable increase in house prices, at +3.4 % compared to all the nations and regions. 

In general, price falls were observed mainly in the South of England. 

Sarah Coles, head of personal finance at Hargreaves Lansdown, credits the north-south divide—prices soaring in the north while dropping in the south—to rising mortgage rates. 

Currently, the average two-year fixed rate mortgage is at 5.93%. 

The blow from high borrowing costs comes at a time when potential homeowners expect mortgage rates to fall.

With the pricier properties on the market, i.e., those in the south of England, the effect of higher mortgage rates is more apparent. Aspiring buyers with tight budgets have no choice but to forego buying entirely. 

With demand down, property prices fall.

Buyers compensate for high borrowing costs by buying flats

High mortgage costs are backing buyers into a corner. Interestingly, first-time buyers are snagging up smaller properties to compensate for high mortgage rates. 

Amanda Bryden, head of mortgages at Halifax, said buyers are targeting flats as reflected in the first few months of 2024. This is clearly reflected in the demand surge for this type of property. 

The demand is significant enough to close the growth gap on other larger properties, such as two-bedroom homes and up on the market. 

Savills predict a 20% increase in property value by 2028

Unfortunately, predictions for the coming years don’t bode well for other first-time buyers still saving up for their starter home. Savills, the international property services company, forecasts that house prices will surge by as much as 20% in the next four years.

In other words, the average asking price could climb as high as £346,500 by 2028— or increase by £61,500.

The Savills prediction considered the performance of the UK economy along with constant cuts to interest rates.

Our Opinion

The fact that the BoE is likely not to cut interest rates this week, will come as a big blow to many homebuyers. With affordability a stretch, many will have hoped that high borrowing costs would finally start to ease.

But instead, many lenders have increased their rates, making affordability worse again. But at the same time prices are rising, showing that even these steep lending costs won’t put off many determined buyers.

At least in areas where prices aren’t sky-high yet. And while this shows the resilience of the market, it won’t be sustainable forever. There will be a point at which affordability is so bad that owning a home or buying a bigger one will be out of reach for most people.

Especially, if supply isn’t increased. And while mortgage rates will come down eventually, potentially later this year, it’s unlikely we will see such low rates as before the pandemic.

In the end, something will have to give, and it might be that house prices have to fall to a more sustainable level again. Whether and when this will happen is difficult to say, especially with the current economic uncertainty.

But for now, the market is holding up and buyers are willing to compromise in order to buy a home.


  • News Desk

    Our news desk team includes a qualified architect, a freelance journalist, and a fanatical property expert who has over 12 years experience in the industry.

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