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Should buyers wait for mortgage rates to go down in 2024?

Not if you’ve found the home you really want and can afford it. Mortgage rates are unlikely to fall further in the first half of the year.

Words by: Nic Hopkirk

Senior Editor

Falling mortgage rates are encouraging more buyers to come to market at a time when more homes are becoming available for sale.

But the ability to drive a really hard bargain is shrinking fast, so buyers will need to be competitive in their offers.

In January 2024, buyer numbers are up 12% year-on-year, while the availability of homes for sale is up 20%, bringing buyers much more choice.

Should buyers wait for mortgage rates to fall? 

Not if you’ve found the home you really want and can afford the mortgage for it. 

Our Executive Director of Research, Richard Donnell, says: ‘Lower mortgage rates are welcome news, but it seems unlikely rates will fall much further in the near term, remaining in the 4-5% range, with the best deals for those with big deposits. 

‘The adjustment to higher mortgage rates was always going to take longer than a year, especially given the modest fall in house prices over 2023.

‘The outlook for inflation remains uncertain, along with how many further cuts in the Base Rate there might be this year.’

In short, it may not be worth losing the home you want for a few thousand pounds, as you are likely to live in it for the next 16 years on average.

Lower mortgage rates will benefit the housing market, but are likely to support the number of homes sold, rather than house price rises in 2024.

Mortgage rates are now under 5% for those with a sub 75% LTV - and in the 4-5% range for people with larger deposits.

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What will happen to house prices in 2024?

2024 is off to a good start for the housing market, there are 20% more homes available for sale than this time last year, which is good news for buyers.

There are also more buyers home hunting (+12%) and more sales being agreed (+13%), which is good news for sellers.

However, 1 in 5 sellers is having to accept an offer of 10% or more below their asking price to secure a sale, rising to 1 in 4 in the south of England.

‘It’s a positive start to the year but this is a rebound off a low base,’ says Donnell. 

‘Sub-5% mortgage rates are encouraging but buyers remain price sensitive and focused on value for money.

‘There is upside for sales volumes but prices still need to adjust to allow for reduced buying power.’

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House price falls start to slow as more sales agreed

‘More sales are now being agreed, which is supporting house prices, but they will continue to adjust to higher mortgage rates through modest price falls,’ says Donnell.

In October, prices fell by -1.4% year-on-year, however in December, this slowed to -0.8%.

The greatest falls are now being seen in the East of England (-2.5%) and the South West (-2.2%). Conversely, Northern Ireland saw prices grow by 3.2% in 2023.

The capital becomes a more attractive prospect for buyers

The capital, long the most expensive part of the country to buy a home, is now becoming a more attractive prospect for buyers.

London housing is now at its most affordable level since 2014, as wages have risen while prices have stalled. 

In 2016, homes reached ‘peak unaffordability’ as buyers were forced to fork out 15 times their annual salaries to buy a home.

House prices simply couldn’t keep rising as buyers could no longer afford the mortgages needed to secure them. The London market hit the ceiling.

But since 2016, prices in the capital have grown a mere 13%: way less than the 34% growth seen across the rest of the UK - and the 50% seen in Wales.

However, it’s now enjoying a bit of a moment: in the first weeks of 2024, London and the East of England have led the rebound in new buyer demand. 

‘This could reflect a turn of fortunes for the London housing market,’ says Donnell.

Why haven’t prices risen in London since 2016?

A line graph showing the house price to earnings ratio for each major UK region between 2003 and 2023. London and the South have much larger ratios and are much more expensive than the other regions.

Aside from the capital being the most expensive place to buy a home in the UK, there are several other reasons why prices have stalled here:

  • tax changes, preventing investors and overseas buyers snapping up properties

  • the Brexit vote, which hit jobs growth 

  • the pandemic, which closed cities to travel and changed working patterns

  • higher mortgage rates, which hit the most expensive housing markets hardest

The average house price in the capital now sits at 13 times the average annual salary.

‘Slowly improving housing affordability in London is positive news,’ says Donnell. ‘But home buyers still face a sizable affordability challenge with mortgage rates doubling since 2021.

‘We expect market conditions in London to continue to improve over 2024, with earnings rising faster than house prices.

‘This will continue to improve affordability and support levels of housing sales, rather than boost house prices.’

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