Over the past decade, the UK property market has faced its fair share of turbulence. Economic shifts, changes in housing demand, and fluctuating mortgage rates have all played pivotal roles in shaping the current landscape. Most recently, the sharp rise in mortgage rates has placed considerable strain on potential buyers, creating uncertainty across the sector. However, a closer look at the most recent data reveals some positive signs: mortgage rates are beginning to ease, and there are hints that confidence may be returning to the market. For those keeping an eye on the property market, these developments offer much to consider.
The Surge in Mortgage Rates and Its Effect on the Market
It’s impossible to discuss the current state of the housing market without addressing the significant rise in mortgage rates over the past two years. In 2022, rates began to climb steeply, following a long period of historically low borrowing costs that had made homeownership more affordable for many. For years, buyers benefited from mortgage deals locked in at rates as low as 1%, which encouraged a rush of purchases and refinancing.
However, the economic challenges of 2022—driven by inflationary pressures, monetary policy changes, and global events—brought this era of ultra-low borrowing to an abrupt end. By mid-2023, mortgage rates had risen sharply, peaking at levels not seen in over a decade. As illustrated in the chart below, this sharp increase in the cost of borrowing significantly impacted affordability, with many potential buyers unable to meet the new criteria set by lenders.
Affordability in a Shifting Market
Affordability has long been a concern for buyers, particularly first-time buyers, who are often more sensitive to changes in mortgage rates. With mortgage payments consuming a larger share of household income, many buyers have had to either delay their purchases or reconsider their options altogether.
The initial impact was most severe for first-time buyers, but the wider market also felt the effects. Homeowners looking to move up the property ladder found themselves in a bind. Higher mortgage rates meant that even if they could sell their current homes, the cost of securing a new mortgage might outweigh any financial gains from the sale. This has resulted in what some experts are calling ‘market gridlock,’ where both buyers and sellers are holding back, waiting for conditions to improve.
The impact of this gridlock is evident in the significant decline in property sales during 2023 and early 2024. Although sales volumes have dropped sharply, they haven’t quite reached the lowest point seen over the past decade, such as during the 2020 lockdown when the market was nearly frozen due to government restrictions.
A Glimmer of Hope: Easing Mortgage Rates
While the outlook may seem bleak, there is some cause for optimism. After reaching a peak in 2023, mortgage rates have started to ease. Though they remain higher than the record lows of the previous decade, this downward trend suggests that a period of relative stability may be on the horizon.
This recent drop in rates is already making a difference. Data shows an uptick in newly agreed mortgage deals for house purchases. As illustrated in the chart below, these new commitments, while not yet translating into a marked rise in completed sales, are an encouraging sign that some buyers are taking advantage of improved conditions. The rise in agreements could be the first step toward a gradual market recovery.
What Do These Trends Mean for the Property Market?
As with any period of uncertainty, the current state of the housing market can be viewed in multiple ways. On the one hand, the ongoing hesitancy among buyers, combined with higher mortgage rates, suggests that the market may remain subdued for a while yet. Many potential buyers may choose to stay on the sidelines, waiting to see how both economic conditions and housing affordability evolve.
On the other hand, the easing of mortgage rates could be seen as a window of opportunity. The rise in newly agreed deals, as seen in the above chart, suggests that some buyers are taking advantage of better terms while others are still waiting. For those in a position to proceed, the current period of lower sales volumes could provide an opportunity to secure a property before competition and prices rise once again.
It’s also worth considering that while sales volumes have been low, the demand for housing in the UK has not diminished. With supply still lagging behind demand in many parts of the country, it’s likely that once mortgage rates stabilise, the market will pick up again. Whether this happens in the short term or the longer term remains to be seen, but those willing to take a long-term view may see this as a prime moment to enter the market.
Should You Buy Now or Wait?
For potential buyers, the question of whether to buy now or wait is a difficult one. On the one hand, the recent easing of mortgage rates and the ongoing low sales volumes might be viewed as an opportunity to secure a property before the market recovers fully. With fewer buyers in the market, there could be more room to negotiate, especially with sellers keen to move forward.
On the other hand, economic uncertainty remains high. Inflation, potential interest rate changes, and ongoing affordability concerns all suggest that caution might be wise. For those unsure about the future, waiting for more stability could allow for a more informed decision when the market settles.
A Market in Transition
The UK property market is clearly in a state of transition. After a period of rising mortgage rates and plummeting sales, we are beginning to see some positive changes. Rates are starting to ease, and the rise in newly agreed mortgage deals is an encouraging sign that confidence may be returning to the market.
Whether now is the time to act or to hold back depends on your personal circumstances and financial situation. The market may still be unpredictable, but for those ready to make a move, this could be a time of opportunity. As always, working with an experienced, FCA-regulated broker can provide valuable guidance, helping you navigate these uncertain waters and make the right choice for your future.
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Disclaimer:
This article is for general guidance purposes only and does not constitute legal, financial, or professional advice. Mortgage products and their terms can vary, and it is important to seek advice from a qualified, regulated professional who can assess your individual circumstances. Please ensure you consider your unique needs before making any financial decisions.
While every effort is made to ensure that the information provided on this blog is accurate and up-to-date, we do not guarantee its completeness or accuracy. The mortgage market can change rapidly, and the information on this blog may become outdated. We recommend verifying any information before acting on it and seeking tailored advice.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
