The opportunities that are available for hopeful home buyers are fewer than would have been found only a few years ago. According to a recent report from Nationwide, the deposit paid by a typical first-time home buyer would be 105% of the buyer’s average gross yearly income. In addition, the mortgage repayment would take approximately 38% of monthly take home pay. The cost of becoming a homeowner has grown exponentially and there are several factors that have made it so.

During the pandemic, experts expected the housing market to dry up and gloom and doom predictions were common. No one expected that the pandemic would, instead of keeping home buyers away, would create a siren’s call to come into the housing market.

What would later be dubbed “The Race for Space”, home buyers sought out a home that would serve the new pandemic lifestyle that required many to work from home, study at home, get fit at home, cook all meals rather than dine out, and spend more time in the home. The pandemic lifestyle dream home offered more space in the home and more outdoor green space outside of it.

Not only was there a new focus for buyers in the housing market, but they had the ability to borrow money for a mortgage with historically low rates. The Bank of England’s Monetary Policy Committee (MPC) in response to economic strains had lowered the standard base interest rate to an all-time historic low not seen in over 300 years. The rate was at almost zero at 0.1%.

Lenders in turn offered their own historic low interest rates. Home buyers were able to afford properties that would have been unaffordable without the low-cost borrowing opportunities. Also, with the demand for space being a priority, and working from home an option, buyers could look beyond the area of easy commuting to work. This opened their options to a wider variety of properties and possibly a dream home that couldn’t have been considered outside of the pandemic.

The most popular mortgages were fixed rate deals as home buyers sought to lock in their low interest rate. Those that chose the popular two-year deals were protected from rising interest rates that began at the end of 2021.

In December 2021, the MPC faced rising inflation and increased the rate from 0.1% to 0.25% and it was the first of fourteen consecutive meetings that resulted in a rate hike. By September 2023, the rate had grown to 5.25% and was held steady by the MPC in hopes the peak rate had been reached. It remained steady during the September, November, and December meetings and will remain so until the next meeting in February 2024.

The higher interest rates have created a much different housing market. House prices, which grew exponentially during the pandemic and broke records month after month, have not corrected to reveal an average house price reflective of a normal level. Along with higher asking prices, home buyers are facing more expensive interest rates and demand has fallen. 

Hopeful home buyers are having affordability issues. Many first-time buyers have been closed out of the market. 

Homeowners have also faced affordability issues as they have come to the end of their terms. Those that obtained two-year fixed mortgages in 2021 and came to the end of their term in 2023, faced rates more than double and sometimes triple of what they were used to paying. 

In 2024, the same situation will occur as homeowners leave behind their cheaper fixed rate and face higher rates and higher repayments. A remortgage offers a lower interest rate choice for those that qualify for a remortgage, those that pass on a remortgage or do not qualify will be transitioned to their lender’s more expensive standard variable rate (SVR) which could be double or more the rate of a remortgage.

The housing market has shown a slight shift as sellers have begun to lower their asking prices, but they remain elevated in comparison to pre-pandemic levels. 

Lenders feeling the lack of demand have cut their own rates even though the MPC kept the rate steady. Some lenders have offers near or under the base rate of 5.25%. Yet, with lenders offering competitive rates and sellers shaving down their asking prices, it is difficult for home buyers to save for a deposit and purchase property as inflation has impacted budgets for years.

The coming year is due to bring lower house prices across England, and the MPC is expected to possibly cut the rate later in the year. The decline of inflation will not likely be felt on the consumer level for some time. The housing market will be adjusting this year, and despite the small changes that could perhaps help buyers, experts believe most will be either discouraged to buy now or be cut out of the market. 

The outlook for 2024 for home buyers is not as optimistic as it could have been, nor as it had been only years ago, but there are still possible factors not at play that could change the current expectations. The government could offer stamp duty cuts or other buyer schemes, and the MPC could surprise almost everyone and cut rates sooner and deeper than expected if inflation stays on a decline.