Homeowners and hopeful home buyers hoping for the high interest rates to take a downward turn as quickly as they rose will be disheartened by the latest report from the International Monetary Fund (IMF). The influential global group reporting on the state of the global economic conditions revealed their forecast for the UK is for higher interest rates to last for five years in the fight against inflation. It should be noted that the report was compiled before the recent revisions to UK growth by the Treasury or the recent declaration of war in Israel.

The housing market has shifted to a buyer’s market. It happened quite quickly if one considers the main reason is due to higher interest rates that were historically low less than two years ago. The Bank of England’s Monetary Policy Committee began the first of the recent series of increases to the standard base interest rate in December 2021. The rate then was at almost zero at 0.1% and was increased to 0.25%, For fourteen consecutive meetings the rate increased to 5.25% until last month, when during the September MPC meeting the majority vote was to hold the rate steady. In less than two years, the housing market went from a boom of record-breaking house prices month into month to the quickest decline in UK house prices in 14 years.

Homeowners should be alert as to the latest reports surrounding the data released by Halifax on the housing market. Most experts are commenting the data points to a strained market throughout next year. This could put pressure on those homeowners with little equity built into their property, this would be fairly new homeowners or those that have cashed out their equity feeling confident in the housing market months and a few years past. The Halifax report revealed that the September annual average house price declined by 4.7%, followed by the August report that experienced a 4.5% fall. 

The house prices reported by Nationwide have declined in every region of the UK. The average house price in September 2023 is 5.3% less than the same month last year. The house price index in August revealed a 0.8% fall. At almost £14,500 less, the average house price reported by Nationwide is £257,808. The average house price decline could be a strong indicator that the housing market might not have faired well had another hike been applied to the standard base interest rate by the Bank of England’s Monetary Policy Committee (MPC).

The Bank of England reported UK mortgage approvals declined in August in comparison to last year. It was the lowest level in half a year and the blame is likely due to higher interest rates. The cost of borrowing has not only caused affordability issues for first-time buyers, but a change in house shopping habits. Where during the height of the pandemic there was a race for space as work for home caused a need for more room and lockdowns made homes with more outdoor green space the pandemic dream house, it was all more possible due to historically low interest rates. Now borrowing is much more expensive, and because even starter homes can be too pricey, first-time home buyers are becoming DIY homeowners and showing stronger demand for overlooked lower priced fixer upper homes.

Possessing a time machine would be nice, not only for personal and emotional reasons, but for many it would be used to return to the moment their financial situation tipped toward struggle. The initial tipping point is often subtle. There are of course moments where one’s financial downfall is like a rug being pulled from beneath one’s feet, but many have it happen in small incremental moments. It appears that this one or the next setback will be difficult but manageable. Homeowners are dealing with that specific scenario, and it is leading to more and more mortgages falling into arrears.