Residential Market Commentary

“We are not out of the woods yet” is the general message on inflation after CPI stayed at 4.0% y-o-y in January 2024 – the same as levels seen in December 2023.

The MPC has now voted to keep rates stable at 5.25% at four consecutive meetings, with market expectations now solidified that this marks the peak with the comment that current rates would be kept “under review” and that “more evidence was needed”. The next MPC meeting is on Thursday 21st March.

The UK economy shrank by 0.3% in the final quarter of 2023, with the economy entering a technical recession after two quarters of contraction. In all, GDP is estimated to have increased by 0.1% for the year. The outlook for growth is muted, with the HM Treasury comparison of independent forecasters suggesting growth of 0.4% for 2024.

In truth, the inflationary pressures, energy pricing shocks and tightening of monetary policy are still having an impact and will weigh on the economy, certainly during the first half of 2024. There is likely to be continued pressure on businesses and subsequently employment, and the impact of increased mortgage rates may take a while to filter through, with only half of interest rate rises estimated to have filtered through to the market.

As for the housing market, there are early signs of optimism, with mortgage rates reducing, an uptick in mortgage approvals and completed sales, and annual house price growth moving into positive territory for the first time in over a year.

The residential market is extremely sensitive to interest rate rises and over the last two years mortgage rates have increased. As we enter 2024, and interest rates are thought to have peaked, mortgage rates have started to decline in anticipation of base rate cuts. For example, if you take a 2-year fixed mortgage with a 90% LTV, average mortgage rates peaked in August 2023 at 6.6% and are now down to 5.5% as of January 2024 (Bank of England External Link).

Mortgage approvals are a leading indicator for housing market demand. 55,227 mortgages were approved in January 2024, 7.2% above last month and 40.2% above the same time last year, showing a continued increase in housing market demand. However, mortgage approvals remain 16.6% below the pre-pandemic average (January 2017-2019 average) (Bank of England External Link).

An estimated 82,000 sales completed in January 2024, 1.9% above last month, the first monthly increase since August 2023. Sales however still remain 11.9% below the same time last year, and 15.9% below pre-pandemic levels (January 2017-2019 average) (HMRC External Link).

Nationwide External Link reported 0.7% seasonally adjusted monthly increase in house prices in February 2024. This resulted in annual house price growth increasing to 1.2%, the first time in positive territory since January 2023. Halifax External Link reported annual house price growth at -4.6% in August 2023.

“We are not out of the woods yet” is the general message on inflation after CPI rose to 4.0% y-o-y in December 2023, after registering 3.9% in the November 2023 release. The MPC has now voted to keep rates stable at 5.25% in four consecutive meetings, with market expectations now solidified that this marks the peak with the comment that current rates would be kept “under review” and that “more evidence was needed”. The next MPC meeting is on Thursday 21st March. High interest rates, strong inflation, and a weaker economy have impacted buyers’ confidence, leading to a slowdown in housing market activity. However, there are early signs of optimism with mortgage rates reducing, an uptick in mortgage approvals, and modest increases in house prices.

The residential market is extremely sensitive to interest rate rises and over the last two years mortgage rates have increased. As we enter 2024, and interest rates are thought to have peaked, mortgage rates have started to decline in anticipation of base rate cuts. For example, if you take a 2-year fixed mortgage with a 90% LTV, average mortgage rates in December 2023 were 5.7%, down from a peak of 6.6% in August 2023. (Bank of England).

Mortgage approvals are a leading indicator for housing market demand. 50,459 mortgages were approved in December 2023, 2.3% above last month and 25.6% above the same time last year, showing a continued increase in housing market demand. However, mortgage approvals remain 21.6% below the pre-pandemic average (December 2017-2019 average). (Bank of England).

Completed transactions remain down on previous benchmarks, however, the level of decline is slowing. An estimated 80,420 sales completed in December 2023, 0.8% below last month, 17.8% below the same time last year, and 18.4% below pre-pandemic levels (December 2017-2019 average). (HMRC).

Nationwide reported annual house price growth at -5.3% in September 2023, unchanged from the previous month. Halifax reported 0.7% seasonally adjusted monthly increase in house prices in January 2024. This resulted in annual house price growth increasing to -0.2%, the strongest level since January 2023.;">

Following a series of successive interest rate hikes, the UK economy is currently in a ‘wait and see’ period, to assess the effects on the substantial inflationary pressures that have impacted the economy over the last two years. 

There is positive news on inflation, with data released just before Christmas seeing CPI increasing to 3.9% in the 12 months to November, down from 4.6% in the previous month, as a result of falling energy prices as well as markedly lower core and food inflation.

The MPC has consecutively voted to keep rates stable at 5.25% and market expectations are that this marks the peak of interest rate hikes, much lower than previous market expectations of around 6%. The next MPC meeting is on February 1st.

High interest rates, strong inflation, and a weaker economy have impacted buyers’ confidence, leading to slowdown in housing market activity. However, over the last couple of months mortgage rates have improved, there has been a slight pickup in mortgage approvals, and modest increases in house prices.

The residential market is extremely sensitive to interest rate rises and over the last two years mortgage rates have increased. As we enter 2024, and interest rates are thought to have peaked, mortgage rates have started to decline in anticipation of base rate cuts. For example, if you take a 2-year fixed mortgage with a 90% LTV, average mortgage rates in December 2023 were 5.7%, down from a peak of 6.6% in August 2023. (Bank of England).

Mortgage approvals are a leading indicator for housing market demand. 50,067 mortgages were approved in November 2023, 4.6% above last month and 9.9% above the same time last year, showing a pickup in housing market demand. However, mortgage approvals remain 23.6% below the pre-pandemic average (November 2017-2019 average).  (Bank of England).

Sales data lags mortgage approvals with the conveyancing process taking several months and therefore the number of completed sales remain down. An estimated 80,780 sales completed in November 2023, 1.2% below last month, 21.1% below the same time last year, and 18.8% below pre-pandemic levels (November 2017-2019 average) (HMRC).

Nationwide reported no seasonally adjusted monthly increase in house prices in December 2023, following three successive monthly increases. Annual house price growth is now at -1.8%, a slight improvement on last month (-2.0%). 

Following a series of successive interest rate hikes, the UK economy is currently in a ‘wait and see’ period, to assess the effects on the substantial inflationary pressures that have impacted the economy over the last two years.

There are signs that inflation has peaked but falls haven’t been as stark as in other advanced economies. CPI rose by 4.6% in October 2023.

The MPC has consecutively voted to keep rates stable at 5.25%, which, if this were to mark the peak – as market pricing now seems to suggest - would be much lower than previous market expectations of around 6%.The next MPC meeting is on December 14th.

The pause in interest rate hikes was driven partially by slower inflation, but also by a result of weakening economic data. Notably, the OBR economic projections released at the Autumn Statement were a downgrade on previous forecasts.

Housing market activity has continued to slow, as high interest rates and inflation, and a weaker economy impact buyers’ confidence. However, over the last couple of months we have seen mortgage rates improve, a slight pickup in mortgage approvals, and monthly increases in house prices.

The residential market is sensitive to interest rate rises and throughout 2023 mortgage rates have fluctuated. For example,e on a 2-year fixed 90% LTV mortgage, the mortgage rate was 5.66% in January 2023. Rates started to slow, dropping to 5.07% in April, but as banks realised inflation was sticker than expected, and further rate rises were needed, mortgage rates started to increase again, peaking at 6.59% in August. With interest rates being held at 5.25% in September and November (below market expectations of a peak at 6%), rates have started to fall again, averaging 6.06% in October 2023. (Bank of England).

Mortgage approvals are a leading indicator for housing market demand. 47,383 mortgages were approved in October 2023, 8.5% above last month, showing an uptick in housing market demand. However, they remain 17.1% below the same time last year and 28.5% below the pre-pandemic average (October 2017-2019 average). (Bank of England).

Sales data lags mortgage approvals with the conveyancing process taking several months. An estimated 82,910 sales completed in October 2023, 2.5% below last month, 20.5% below the same time last year, and 16.7% below pre-pandemic levels (October 2017-2019 average) (HMRC).

Nationwide reported a 0.2% seasonally adjusted monthly increase in house prices in November 2023, following 0.9% monthly growth in October. These monthly increases have resulted in an improvement in annual house price growth, now at -2.0%.

Following a series of successive interest rate hikes, the UK economy is currently in a ‘wait and see’ period, to assess the effects on the substantial inflationary pressures that have impacted the economy over the last two years.

There are signs that inflation has peaked but falls haven’t been as stark as in other advanced economies. CPI rose by 6.7% in September, the same rate as August.

The MPC has consecutively voted to keep rates stable at 5.25%, which, if this were to mark the peak – as market pricing now seems to suggest - would be much lower than previous market expectations of around 6%.

The pause in interest rate hikes has been driven by weakening economic data. Since then, data has been released which has fallen on the downside of the MPC projections - CPI, services inflation, monthly GDP and increased unemployment - these are likely to mean the MPC keeps the rates at 5.25%. However, average weekly wages increasing to 8% could potentially raise concern.

Housing market activity has continued to slow, as high interest rates, sticky inflation, and a weaker economy impact buyers’ confidence. However, mortgage rates have improved, and house prices picked up over the last month.

Mortgage interest rates have been particularly affected by the economic climate. Rates on a 2-year fixed 90% LTV mortgage reached 6.59% in August 2023. With the MPC decision to keep interest rates at 5.25% for now, mortgage rates on a 2-year fixed 90% LTV declined in September 2023 to 6.38%. (Bank of England).

43,328 mortgages were approved in September 2023, 4.7% below last month, 32.5% below the same time last year and 34.5% below the pre-pandemic average (September 2017-2019 average). (Bank of England).

An estimated 85,610 sales completed in September 2023. Monthly sales rates have returned to negative territory, the result of higher mortgage rates impacting buyer demand over the last few months. Sales were 0.6% below last month, 17.0% below the same time last year and 14.3% below pre-pandemic levels (September 2017-2019 average) (HMRC).

Nationwide reported a 0.9% seasonally adjusted monthly increase in house prices in October 2023, this resulted in an improvement in annual house price growth, now at -3.3%. Halifax also reported a monthly increase in house prices, rising 1.1%. Annual house price growth improved to -3.2%.

The inflationary pressures that have been weighing on consumers, and resulted in consecutive interest rate hikes, seem to be easing. CPI remained at 6.7% in the 12 months to September, the same as the previous month, and below 6.8% in July 2023.

On 21st September, the MPC voted 5-4 to keep the base rate stable at 5.25%, which, if this were to mark the peak, as market pricing now seems to suggest, would be much lower than previous market expectations of above 6%.

This pause in interest rate hikes was driven by weakening economic data. The most recent economic data shows a 0.2% increase in monthly GDP in August, following a 0.6% fall in the previous month. Nevertheless, the economy has still grown by 0.3% over the last three months.

Housing market activity has continued to slow, as rising interest rates, high inflation, and a weaker economy impact buyers’ confidence.

Mortgage interest rates increased throughout 2022. For example, a 2-year fixed mortgage rate on a 90% LTV was 1.95% in January 2022, peaking at 6.28% in November 2022. Rates had improved slightly, declining to 5.07% in April 2023. However, with inflation remaining sticker than expected, mortgage rates increased to an average of 6.59% in August 2023. Monthly mortgage payments have or will become more expensive for many households as the wider cost of living crisis continues to bite (Bank of England).

45,354 mortgages were approved in August 2023, 8.4% below last month, 37.3% below the same time last year and 32% below the pre-pandemic average (August 2017-2019 average) (Bank of England).

An estimated 87,010 sales completed in August 2023. Sales were 1.1% above last month, reflecting sales agreed earlier in the year when mortgage rates were slightly lower. Sales remained 15.6% below the same time last year and 13.0% below pre-pandemic levels (August 2017-2019 average) (HMRC).

Nationwide reported annual house price growth at -5.3% in September 2023, unchanged from the previous month. Halifax reported annual house price growth at -4.7% in September 2023, down 0.4% on last month.