In an act of resilience against the forecasts for the first half of the year, the housing market has recorded an average house price near the peak recorded in 2022. Expectations for the first half of 2024 were for consumers to still feel the impact of inflation as it slowly creeped toward the target level of 2.0%. In addition, borrowing would remain expensive as the Bank of England’s Monetary Policy Committee (MPC) put pressure on inflation to remain on a downward trajectory toward target. The ability to buy a home was considered to be more difficult to accomplish until inflation eased borrowing costs later in 2024. This would cause a stall in growth in the housing market, as well as lower asking prices and buyers would return in the last part of the year and possibly not until 2025.

The difficulty in borrowing due to higher interest rates was not only seen as a difficulty facing hopeful home buyers, but also for homeowners in need of a remortgage. Many homeowners will come to the end of their mortgage term this year. The mortgage terms ending after two-year fixed rate deals could put a difficult financial strain on the homeowners.

In March of 2022, the MPC increased the standard base interest rate by double. It was hiked from 0.25% to 0.50%. The current base rate, held steady for four consecutive meetings, is now at 5.25%. The differences in lender rates from March 2022 to now are vast. The cost is exponentially more expensive and for some homeowners it could be a period of financial strain teetering on affordability.

The possible financial difficulty for homeowners coming to the end of their fixed rate mortgage terms is why experts have encouraged them to consider remortgaging over allowing their lender to move them to their standard variable rate (SVR). Avoiding a SVR with higher interest rates is a smart strategy due to a remortgage likely offering the lower rate as well as the ability to avoid any rate hikes during the new term with a fixed rate remortgage deal.

Unexpectedly, lenders brought about a competitive lending market in late January and into February. Despite the MPC holding the base rate steady, they began to drop their rates and eventually the rates fell below the Bank’s base rate. This was due to the lack of borrowing because of higher rates, and an optimistic outlook that the MPC would soon be cutting their base rate anyway.

However, inflation grew in November, which was reported in December. It had declined to 3.9% in October, reported in November, which was quite a feat after having reached double digits in early 2023. The December report on inflation, released in January, revealed growth of 4.0% and the next report was expected to show a decline, but inflation remained steady. 

The next inflation rate report is due in days as well as the next MPC meeting. If the inflation rate has grown, the MPC might hold steady with the intention of allowing higher interest rates to curb spending and bring inflation down slowly. They could also decide a slight rate increase would be needed to bump the 4.0% stubborn level downward and avoid any further growth.

The competitive lending market led to a boost in the housing market. It is, according to experts, the main reason for the recent growth as buyers returned to purchasing. Unfortunately, almost as quickly as the competitive rates developed, they began to disappear. Therefore, the minor boost to the market being offered by housing market reports could be short lived. Especially since prior months were boosted on the optimism of declining inflation.

The latest house price report is from Halifax which revealed growth of 1.7% on an annual basis with a new house price average of £291,699. The new average is only £1,800 below the peak housing price average of 2022. The monthly increase for February 2024 was 0.4%, and it is the fifth consecutive monthly increase.

Kim Kinnaird, Halifax Mortgages director, remarked there has been a relatively stable start to the year and offers a positive outlook looking ahead. 

She said, “In fact, the average price tag of a home is now only about £1,800 off the peak seen in June 2022.

“Although lower mortgage rates, alongside expectations of Bank of England interest rate cuts this year, should help buyer confidence in the short term, the downward trend on rates is showing signs of fading.”

However, she also mentioned the difficulty for home buyers in saving for a deposit and the higher costs of properties. 

To keep a positive outlook for the market and the economy, inflation will need to show movement downward or at least hold steady. In response, the MPC will need to show confidence in the current rate being peak and still capable of working against inflation. Otherwise, the housing market could look quite different in the coming months should the MPC take an assertive position and increase the base rate.

The next inflation report is due on 20 March, and the day after is the second meeting this year of the MPC.