The housing market has proved to be resilient once more, and lenders are being credited with the turnaround from the gloom and doom predictions for 2024. As last year was nearing a close, all signs pointed to a difficult year ahead. Home buyers were exiting the housing market. Some were leaving due to a lack of confidence in the economy, others due to the higher cost of borrowing, and others simply because they could not afford to buy. Despite the Bank of England holding steady on the standard base interest rate, the lack of borrowing spurred lenders to make their own cuts to increase demand.

The competitive environment among lenders has led to a strong decline in rate offerings. There are some mortgage and remortgage deals on the market that are below the Bank’s base rate. Homeowners and home buyers have responded and are not going to let the opportunity that has emerged pass them by without taking advantage of the unexpected savings.

Home sellers have returned to the market as well, seeing this as their own opportunity to get a buyer. This has led to a greater supply of properties coming to the market, which also is a strong motivator for home buyers to shop.

It appears due to recent revisions in expected house prices, the year could actually show growth in the housing market versus the retraction so many predicted. Revisions by some experts have been a complete 180 degrees and they no longer forecast a struggling UK housing market at the end of 2024.

However, it appears the government is intent on creating opportunities for the housing market that perhaps are no longer needed. Maybe they’ve not reviewed the latest data offered, and they were creative and hopeful to find a solution when the gloom and doom predictions were abundant. Credit should be given that they went to work on a new scheme, but maybe now it should be shelved. In unveiling it when things are looking up, they have triggered warnings dooming the housing market to being overburdened. 

The new scheme is focused on helping first-time buyers. Critics call this an attempt to appease young voters. No matter the intent, the scheme offers a 99% mortgage loan with the new buyer only required to provide a 1% deposit toward the property. 

While it certainly makes climbing onto the property ladder more affordable, it could create a housing market bubble that would be disastrous, even for those taking advantage of the scheme. In many cases, the home buyers are stretched to buy and are ill equipped financially to handle future fluctuations in interest rates as most recently occurred when in the course of two years the Bank’s standard base rate went from an all-time historic low of almost zero at 0.1% to a fifteen year high of 5.25%.

There are many Help to Buy scheme homeowners that have found it difficult to remortgage and they were responsible for 5.0% of their deposit. Without the ability to remortgage, at the end of their mortgage term they are transitioned to their lender’s standard variable rate (SVR) and likely a higher interest rate than what they would have been able to secure with a remortgage. They are basically held hostage to their mortgage without the ability to obtain a lower rate or a fixed rate to shield them from possible rate hikes.

Initially getting into a mortgage with only 1% of equity built into the purchase through the deposit, the homeowner is at a greater risk of falling into negative equity. This situation shuts them out of a remortgage, puts them in a possibly strained financial situation of higher repayments and eventually many could fall into arrears. 

The housing market is considered delicate at the moment. There is still a need for a slow and steady correction to the demand boosts during the pandemic that broke average house price records many times over. House prices remain elevated beyond what most hopeful home buyers could ever afford. Experts warn opening the housing market to a rush of first-time buyers could over strain the market and push prices upward. 

Others fear a return to the economic crisis of 2008 created by home buyers coming onto the market unable to afford the financial responsibility of homeownership and causing a financial collapse to the lending market, the housing market, and all supporting branches connected to new buyers and homeownership and eventually the economy.

The housing market is an important part of the overall economy and even considering a situation that could upend and possibly send consumers into another financial hardship after enduring Brexit, a global pandemic, and the last few years of inflation, is a lot to ask. 

Perhaps, it is something that will be reexamined and reshaped as more data emerges on the current state of the economy, inflation, and the housing market. It is certainly easy to understand the excitement of those struggling to save for a deposit to be seen and there be a possible launching pad to help them, but the outcome could be something that has a far greater negative impact than just on those taking advantage of the new scheme.