Lender warns rates must drop further and faster to boost housing market

The Mortgage Lander is warning that mortgages rates will need to come down more, and faster, to really kick-start the housing market again.

Steve Griffiths, chief commercial officer at The Mortgage Lender, says: “For much of this year mortgage rates have been following the same upwards trajectory of the Bank of England’s base rate; however we could be seeing the start of a shift in the market .

“… TML’s research found that some buyers are still planning to go ahead with their purchasing plans, even if it means making compromises along the way to mitigate against rate rises. Of those who are progressing with their homebuying decision despite high interest rates, 27 per cent said they’re buying away from commuter towns for example, while another 24 per cent said they’ll buy a cheaper property that needs renovation work. Others are compromising on outside space (21 per cent) and property types (13 per cent).

“Rates will need to come down further to really benefit prospective buyers, particularly first-time buyers who are still facing a significant affordability challenge. Flexibility is key for those who are keen to progress. Speaking to a broker early will help buyers understand the options that are available to them and what is feasible when it comes to their homeownership goals.”

Griffiths’ comments come after the release of the government’s official UK House Price Index, showing a 0.1 per cent drop in average annual prices. It relates to September but is regarded as the most authoritative of the many house price indices published each month.

In response Stephen Perkins, managing director at Yellow Brick Mortgages, comments: "It's no surprise that UK house prices fell by 0.1 per cent in the 12 months to September given the headwinds facing the market earlier in the year. Remember that this data is showing completed prices on sales agreed a number of months before September. However, with the economy looking to have turned a corner following the  better than expected inflation data, and mortgage rates improving by the day, this may be the best time to buy before further house price increases."

And Simon Jones, chief executive of Investing Reviews, adds:  "The time lag is key and things have improved materially for borrowers in recent months. The sharp fall in inflation in October will likely support the property market as lenders further reduce mortgage rates and sentiment picks up as households feel the financial pressure relent a little. However, let's not forget that a significant number of borrowers are still to come off their ultra-low fixed rates, which could see an increase in forced sales and therefore supply, putting downward pressure on prices in 2024.”

Meanwhile Kundan Bhaduri, property developer and portfolio landlord at The Kushman Group, says the industry should brace itself for an influx of house hunters. "The Chancellor's plan is finally working as Rishi and Jeremy give inflation a good kicking. Clearly, the ripple effect of this good news is about to hit the housing scene. We're talking lower mortgage rates, boosting buyer confidence and turning people's property dreams into reality. But, hang on, it's not all sunshine and rainbows. We still have a nationwide puzzle to solve – there's just not enough housing stock in the market. While demand is improving, supply is not. 2024 is likely to see a steady climb in house prices.”