Homeowners Offered Good News in Expectations for Housing Market and Interest Rates

Homeowners Offered Good News in Expectations for Housing Market and Interest Rates

According to experts, homeowners no longer should fear declining into negative equity. This occurs when the property value falls below the debt on the property. When in negative equity, the homeowner will be out of reach of a remortgage until they bring the debt below the property value. Without access to a remortgage, a homeowner coming to the end of their current mortgage deal will be transitioned to the lender’s standard variable rate (SVR) and will be paying more and could have saved if they had access to a remortgage and a likely substantially lower interest rate.

Most forecasts had called for the housing market to slow down due to higher interest rates and the elevated house prices that were influenced by the pandemic and caused a buying boost that resulted in record highs month after month. Also, hopeful home buyers have struggled to save due to long standing inflation that had reached double digits. While inflation is declining, and the next report could reveal it has dropped from 3.2% to very close to the target of 2.0%, it will not offer relief at the consumer level for some time. Overall, lower demand in the housing market was expected, but no more.

One report on the reversal of a housing market forecast for the year has been released by Savills. Their once 3.0% forecasted decline has been restated as an expected 2.5% increase. The increase to the average house price in the next five years is forecasted to grow by £61,500, or 21.6%, to £346,500. The volume of homes sold is expected to increase to 1.05 million.

The head of residential research at Savills, Lucian Cook, remarked, “The outlook for 2024 has improved since our last forecasts as mortgage costs have nudged down slightly and are much less volatile. The outlook for economic growth has also slightly improved, pointing to relatively modest house price growth this year, with greater potential over the following few years.”

Demand in the housing market increased when lenders became competitive in their mortgage offers despite the Bank of England’s Monetary Policy Committee (MPC) voting to keep the standard base interest rate at 5.25%. There had been an expectation of an early cut to the base rate by spring, but now that has been pushed to summer, possibly in August. 

In the first quarter of the year, lender offers dropped below the base rate. However, some lenders have begun to pull their best rates as the forecasts for an early rate cut changed. According to Mr. Cook of Savills, a 75% LTV, two-year fixed rate mortgage deal from Nationwide was 5.35% in November and had fallen to 4.84%. The deal is no longer available, but there are still some attractive deals to discover. 

Mr. Cook added, “The highly competitive nature of the mortgage market has meant that lenders have fairly aggressively priced in the prospect of cuts in bank base rate, causing buyer confidence, and prices, to recover somewhat.”

The opportunity of having the choice of lower interest rates will likely come when the MPC does vote for a cut. The next meeting of the committee is tomorrow, Thursday, 9 May. The rate will likely be voted once more to be held at 5.25%, especially since the inflation report will be released on 22 May. However, should inflation decrease close to the target of 2.0%, there might be a cut in June. The following inflation report will be released on 19 June and the MPC meeting for June will be held on the 20th. 

The possible cut, when it occurs, will probably be 0.25%, a slight cut to the current base rate to determine how inflation responds. Experts believe there could be two cuts by year end.

There are warnings that homeowners coming to the end of their mortgage term, should not wait out and allow their lender to move them to their SVR if they could discover an affordable remortgage deal instead. Paying out on a SVR rather than a lower interest rate remortgage would have the homeowner expensing more from their budget than necessary while waiting out for lower rates, which when they do come could look like the rates of today. This is especially so due to the small cut expected to the base rate when it happens. 

The decision to remortgage now or later, taking advantage of current deals or waiting out until the MPC votes for a cut is a decision that is as unique as each individual homeowner.

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