The Halifax house price index shows that once again there has been a small but steady dip in house prices in July. Average house prices fell by -0.3%, a fourth consecutive monthly decline. This should come as no surprise given the huge pressure people are under as a result of elevated mortgage costs. What might come as a surprise is how resilient the housing market continues to be in the face of significant headwinds.
Positively it seems that according to Halifax, activity in the market is on the rise, which should abate any large crashes in house prices. The lender claimed that first time buyers are not yet being completely perturbed from the market and instead having to settle for smaller properties that cost less so that they can achieve a lower monthly mortgage cost. This echoes what we are seeing which is that buyers are having to recalibrate how far their money can stretch but are in most cases still ploughing ahead with a purchase if they can.
The future of the housing market will be to a degree predicated on how much harder the Bank of England feel that they have to go with interest rates to tame inflation and crucially what investors predict the Bank to do. The future of mortgage rates is hinged on investors predictions for the future of interest rates. In the past few months, investors have taking a much more negative view of how high interest rates will go and for how long due to inflation and the rate is it reducing.
Once inflation starts to come down to the Bank of England’s target of 2% it will feel vindicated to start to reduce the pressure it is exerting on the economy through interest rate rises. Only once we see inflation start to fall significantly will we hopefully see the Bank of England base rate plateau and then start to come down. This will release the pressure placed on the housing market and we may start to see prices increase again as more and more people feel comfortable to enter the market or move.
However, the whole picture is unpredictable at the moment, and other wider factors can influence what happens. It is impossible to predict the future but it looks likely that at least for the next two years we are going to see interest rates remain elevated compared to the ultra-low levels seen prior and during the pandemic. People’s wage growth will therefore play a significant part in the future of the housing market and if the UK dips into recession we may see wages stagnate.
For mortgage borrowers trying to predict the future can be a fools game and just reacting to the here and now is the most sensible option. Making sure that your monthly payments while painful are still achievable is of paramount importance. If you are coming up to having to remortgage then seeking professional mortgage advice can help you scan the market to find the best deal suitable for your specific needs.
Karen Noye is mortgage expert at Quilter
