The UK mortgage market outlook remains ‘subdued’ for the period of July to September 2024 with the Bank of England holding the base rate again, thus pushing the prospect of an interest rate reduction to August at the earliest.
However, whilst inflation has steadily declined over the last 12 months, the rate is still well above the Bank of England’s 2% target and with wage inflation reaming high and stickiness of prices in the service sector, this may prevent early cuts in interest rates.
Whilst we cannot read too much into one month’s inflation numbers; high interest rates are working as expected, by removing money from the economy and discouraging investment. Nevertheless, inflation is expected to end 2024 above target at 2.3%.
August now looks like the earliest the Bank will be ready to move the base rate, unless wage growth weakens significantly in the next couple of months.
Housing Market Outlook
The Nationwide house price index dropped another 0.4% in April and whilst surveyors no longer expect falls at the national level and estate agents are bullish about the prospect for both activity and asking prices, housing analysts are somewhat more realistic and expecting house prices to drop another 0.1 to 0.2% by the end of 2024.
Although a drop in the Nationwide house price index of 0.1 to 0.2% may seem small, this is a national index and when inflation is taken into account, the real terms falls in house prices is expected to be closer to 3% for 2024.
UK Mortgage Market Outlook
So with house prices slightly falling, inflation and interest rates holding, what can we expect from the UK Mortgage Market Outlook and its activity for Q3 of 2024?
Unfortunately, the lowering of interest rates that would unlock the mortgage market now look further away than a few months ago, especially given Activity has improved but remains subdued.
Last week, the BoE chose to keep interest rates unchanged for the 6th successive time at their current 5.25%.
Although the rate has remained at 5.25% since August 2023 governor Andrew Bailey hinted that rate cuts could be on the way as he was “optimistic that things are moving in the right direction”.
Whilst potential sellers are coming back to the market and lenders say credit is available, the reality of stretched affordability means that buyers are still in limited supply, thus keeping prices high and activity levels low.
Many mortgage lenders have raised their mortgage rates recently and this trend to the quoted rates for mortgage lending have crept up in the last couple of months and as a result it is expected that product rates will remain elevated in the short term and until the market receives enough of a signal to change, should rates and/or house prices fall sufficiently.
Nevertheless, the difference between good credit and bad credit mortgage rates remains very tight, with adverse credit mortgage lenders battling to remain competitive, given their different business models. Although lenders expect rate spreads to remain unchanged in the coming quarter, many bad credit mortgage products (especially remortgages) can still be obtained within 1% of their good credit equivalents, with LTV’s of 70% or less.
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