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. 

Much of the demand was fueled by home buyers wanting more space at home to work privately and for children to learn and study. The pandemic lifestyle created in the housing market what was dubbed “The Race for Space” as demand grew rapidly and sent house prices soaring. It was also at a time when borrowing was at an all time low due to the Bank of England’s standard base rate being cut to almost zero and a record low of 0.1%.

Inflation forced the Bank of England’s Monetary Policy Committee (MPC) to increase the rate starting in December 2021 to 0.25%. It was the start of what would be 14 consecutive MPC meetings that resulted in an increase in the base rate. In only two years, the rate went from 0.1% in December 2021 to 0.25% and is now at 5.25%.

The rate has been allowed to stay steady since the meeting in September. The following MPC meetings that were held in November and December, with no meeting held in October, resulted in a stay of the rate, though there were members that voted for an increase. The majority votes were for the rate to remain.

For borrowers, lender rates are much different when the base rate is at 0.1% than when at 5.25%.

However, due to the rate remaining steady for the end of the year meetings, and due to a decline in the inflation rate, lenders are more relaxed in lending and because the higher rates have lowered demand a more competitive market has developed. Lenders are not only keeping their rates steady as well, and avoiding increases, but some have lowered their offerings below the Bank’s base rate.

There are more mortgage products being offered below 5.25% than remortgage products, but there are similar remortgage deals out there. The best deals are going to be offered to borrowers with near excellent credit history, and those with more attractive loan to value (LTV) ratios, but overall, the current rates offered are surprisingly low in comparison as to what many would have expected.

Yet, despite a competitive lending market, and despite lower than expected lender rates, the demand in the housing market has remained more subdued than last year when rates were lower. It is because of the higher interest rates and therefore higher borrowing costs that home buyers have been either reluctant to purchase or there are affordability issues.

Two of the top UK mortgage lenders, Nationwide and Halifax, have forecasted a decline in UK house prices for 2024. 

Robert Gardner, chief economist with Nationwide, remarked, “Even though house prices are modestly lower, and incomes have been rising strongly, at least in cash terms, this hasn’t been enough to offset the impact of higher mortgage rates. As a result, housing affordability is still stretched.”

Nationwide has predicted a low single digit decline or for the average house price to remain flat, and Halifax has forecasted a decline of 2% to 4% next year.

The decline in house prices can lead to a decline in property values and this is a concern for the homeowners that could fall into negative equity. It was a possible worse case scenario for newer homeowners that experts warned about early this year, but many had hoped it had failed to materialize. 

Negative equity is when the property value falls below the debt on a property, which is essentially erasing any built-up equity on a property and therefore referred to as negative equity. Unfortunately, in negative equity situations, the homeowner is out of reach of a remortgage until the debt is brought down under the property value. For most, this would mean paying more money toward the debt of the home at a time when just meeting repayments is a struggle.

There are many factors at play that should put homeowners on alert to shop for a remortgage sooner rather than later. One being that current rates are incredibly attractive due to competitive lending, and another factor is while currently the base rate has been held steady, the MPC noted that there might be a need for another rate hike just as some members had voted for in the December meeting. Also, with warnings of declining house prices next year, for those with little equity built into their property, the possibility of declining into negative equity could block the ability to remortgage and save money.

With the ability to shop online for a remortgage and obtain quotes quickly, there is no time like the present to determine if the benefits of a remortgage could help now or in the near future, for things are not likely to remain in 2024 as they are now.