The housing market is losing steam. Once so full of energy that it seemed unstoppable, it has reached a hill that it might not be able to conquer without help along the way. There have been many times in just the past years that experts forecasted gloom and doom for the market only for it to exit the fog and come out victorious. During the Brexit battles, home buyers remained resilient in their pursuit of ownership. No one could have foreseen the explosive desire to buy when a global pandemic set in and lockdowns almost completely altered how hopeful home buyers shopped. The market flourished despite the pandemic, and as things returned closer to normal, the UK housing market surged ahead.

The demand was so great, and supply so low, that house prices grew to new highs many times from month to month. With each new height, doubt set in that buyers would remain and yet they showed up over and over. 

When inflation set in and there was noting more to do for the Bank of England’s Monetary Policy Committee (MPC) but increase interest rates, again it was thought a rise in interest rates would surely take its toll, and perhaps it has now, but a year on with rising rates buyers were only slightly deterred.

The higher house prices after increasing the Bank’s rate, could have been due to a rush to buy. An effort to avoid paying more than necessary by waiting to purchase. However, it was interesting, if not confusing, that buyers were coming onto the market to not only buy with more expensive borrowing rates, but also with house prices still elevated.

Sellers have been reluctant to accept that perhaps they missed the opportunity to sell their property at a top price and therefore top profit, for asking prices are not reflecting the struggles of buyers. It could also be that many sellers are those regretting their earlier purchases now that interest rates have risen. What was once affordable may be looking less so as interest rates increase. Selling now and at a slight profit over their original purchase price could save some current homeowners from defaulting or drowning in negative equity should property values decline as predicted by double digits.

The pandemic brought about two unique factors. The first being low interest rates. The MPC cut the standard base interest rate to 0.1%. It was the closest to zero the rate had ever been. It was the lowest the rate ever in over 300 years. Borrowing was very cheap. It made homes once out of reach now a possibility for buyers. Many first time buyers were able to skip over the starter homes and go right into homes that would have been considered an upgrade for a growing family that had already had many years of homeownership. Flats were overlooked as first time buyers jumped into multiple bedroom homes with large gardens and lots of room both indoors and out.

The focus on more space inside and outside of the home was the other main factor brought about by the pandemic. It was actually dubbed The Race for Space as people sought out more space to live out their forced upon pandemic lifestyle. A once suitable abode was now stuffy and inappropriate for working from home, serving as a space for learning and studying for children, and there was a yearning for space to better provide home entertainment, working out, and much needed privacy. Home gardens would be coveted for the ability to allow families, children, and pets to safely enjoy the outdoors.

The most determined and the risk takers likely jumped into the pandemic housing market first. They shrugged the city life and sought out larger homes with vast gardens in the once overlooked countryside. Convenient city nightlife was no longer the desire as the cottage lifestyle grew to be the new trend.

Those less likely to shrug off their city life or escape their longtime once comfortable home watched as others dove into the market and arose with dream lifestyle properties. It seemed like an opportunity not to be missed and as historic low interest rates continued on and the pandemic wouldn’t go away, there was no time like the present to be one of those that made the most of the economy and grabbed their own dream home. 

Renting was more expensive than buying so more renters joined the property ladder. Homeowners upgraded quicker than expected, and others whether hopeful home buyers or already homeowners simply saw an opportunity to jump in and buy and get a home that while now purchasable would have been a stretch or even unaffordable outside of the then economic conditions. Landlords, too, took advantage of the boom in the market and sold off some, if not all, of their portfolio at profitable results due to the higher house prices.

In December 2021, as the pandemic lockdowns were fading into the rearview mirror, inflation was growing. Consumers were spending and borrowing as they rose from the pandemic struggles. Demand was putting strains on an already tight supply chain. There was a war in Ukraine driving up food prices and energy prices. The end of 2021 would see the first of many interest rate increases to come.

The Bank’s rate rose from 0.1% in December 2021 to 0.25%. A slight increase on paper, but it is more than double the previous rate. Such an increase would have little impact in general, unless of course one held a lot of debt based on the historic low level and their budget was in need of low interest rates to be sustained. This was the reality of homeowners.

Some household budgets were still recovering from the pandemic. Inflation was taking a toll, along with higher energy costs just when winter was setting in and heating costs would be unavoidable. Then borrowing became more expensive. It would continue to be more expensive with each meeting of the MPC. From that first increase came another nine during each consecutive gathering of the MPC that resulted in the rate reaching 4.0% in February 2023.

Inflation has now possibly reached its peak and could be coming under control. However, it doesn’t mean that the MPC can sit back and do nothing more. It is likely a few more rate increases will be needed. Even if inflation starts to contract, interest rates are likely to remain to keep inflation heading toward the 2.0% target rate from it’s now double digit level of over 10%.

Those homeowners, the ones that jumped in with little regard, if any, for the fact that historic low interest rates were not likely to remain, are also likely dealing with the maintenance costs of a larger home. Gardens don’t take care of themselves either. They have their own unique maintenance costs of both time and money. Weary homeowners, with inflation and rising energy cost battled budgets, are coming to the end of their mortgage term gained when historic interest rates were available and facing higher repayments.

The end of a mortgage term is the end of the current interest rate being paid. A homeowner can remortgage to a new chosen rate, or be moved to their lender’s usually higher interest rate and riskier standard variable rate (SVR). The SVR is likely a higher rate and more expensive and unlike with a fixed rate remortgage, will be vulnerable to more rate hikes.

Remortgage demand is the new opportunity. It allows one to save from the usually more expensive SVR, and with a fixed rate remortgage it allows one to shield their budget from further rate hikes. Unfortunately, remortgage rates will not resemble the previous rate levels of those found when historically low rates were offered, but they could definitely be the strategy for enduring the economic expectations of the future. Savings are possible from the rate paid on a SVR and savings are possible with a fixed rate that would offer relief from further rate hikes.

The housing market is a living beast of sorts. It changes and evolves. It provides and it devours. It is never to be taken lightly or underestimated. To enter its enclosure, one must be educated as to the current situation as well as consequences if conditions and behavior changes. 

Like any other relationship, a home buyer is making a commitment to their home and the mortgage. There will be good times and memories, and sometimes it is going to be hard. 

Many will find the current times hard, something that if endured could bring rewards. Not all will be able to sustain higher interest rate costs and will either default or will sell and get out of their mortgage strains. Others will seek assistance and take every possible opportunity to make it through. Eventually inflation will ease, energy costs will as well, and supply chains will no longer leave empty spots on retail shelves. It will help. Interest rates might not plunge to historic low levels, but threats of continuous increases will quiet. Adjustments will be made, new normals will take hold, and homeowners will weather one storm in their relationship, enjoy the calm and prepare for the next one. They come, they go, and that is the way it always has been.