There is no doubt first-time home buyers are having a harder time climbing onto the property ladder than the buyers who purchased two years ago. Interest rates are higher, and house prices remain elevated after numerous record-breaking boosts to the average house price throughout the pandemic. Inflation has taken away money from budgets making saving for a deposit more difficult. In addition, many home buyers are coming to lenders with complicated credit histories due to the impact the pandemic had on their earnings.

As the new year comes, homeowners are looking for answers. Questions could cover whether the Bank of England’s base rate will be cut and lower the cost of borrowing, or if the housing market will be resilient against the gloom and doom forecasts of some, or if property values will hold and keep homeowners from falling into negative equity. There are likely many other questions as homeowners navigate the financial landscape of 2024. Unfortunately, there are fewer knowns about the upcoming economy than there was this time last year for 2023.

According to the Office for National Statistics (ONS), UK house prices declined at the quickest rate in more than a decade in the year to October. As would be expected, London, the area with the highest house prices, experienced the greatest decline. The ONS data is being blamed on the higher cost of borrowing as interest rates have increased significantly over the past two years. Not only are home buyers facing affordability issues, but so are homeowners as well.

Interest rates have risen substantially in the last two years, and for home buyers it has made the decision to enter the housing market one that needs more consideration. Not only has borrowing become more expensive, but house prices remain elevated from their steep climb during the pandemic induced housing boom. While buyers can choose to engage with the current rates, homeowners do not have the option for they must face current rates when their mortgage term ends. Their choice rests in being moved to their lender’s standard variable rate (SVR) or to choose a remortgage. Either way, when rates have risen, the new rate is likely going to look and cost very differently than the rate they were used to paying.

House prices are an important indicator of the state of the economy. At times it can indicate economic forecasts are going to fall short of their projected outcome or outperform the expectations of experts. This was the case when the pandemic caused lockdowns, and many expected a definite gloom and doom scenario for the housing market. However, the pandemic caused a strong demand for more space both inside and outside the home and created a strong desire for property that was unexpected. 

The Bank of England’s Monetary Policy Committee (MPC) met on Thursday to determine if their efforts to tame inflation have been good enough to let the rate stay steady. Not all members wanted to keep the rate at the current 5.25%. The vote was 6-3 and those that voted against the steady rate wanted to increase the rate. The voting was absent of any member looking to cut the base rate.