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Welcome back! No doubt we are all resembling the mince pies we have been eating and heading into the annual January purge to undo all the seasonal indulgences. To usher in the new year, we have recapped the main themes of 2024 and even been as bold as to make some predictions for 2025, so we can see how well this aged next year…
If you prefer to listen to this update, you can do so HERE on Spotify, where Matt Coulson and myself talk this over in more detail, but if you prefer to have a good old fashioned read, please do so:
Market Update
2024 Round up
In the mortgage world 2024 was dominated by 3 main themes, which were all interlinked:
- The VUCA (Volatile, Uncertain, Chaotic and Ambiguous) Environment
- From around 2016 onwards we have had to get used to this as almost annually huge unpredicted events happen. Such as Brexit, Covid, War in Ukraine and the infamous ‘Mini Budget’ to name just a few.
- Political Instability/Uncertainty
- 2024 was defined by most major western countries having elections, with very mixed results (See above!). Also, wars in the middle east have a direct impact on transporting goods, which again causes uncertainty and increases costs, along with the constant anxiety of wider escalation.
- Inflation
- The above 2 points have a direct impact on inflation. As one of the fundamental roles of the Bank of England is to keep inflation at 2%, the main tool of which is to move the Base Rate and set lending rates accordingly, this will always be our main focus. With inflation ticking up at the end of the year, largely linked to the points already made, the path isn’t as clear this year for rates to reduce as quickly as we had hoped in 2024. Hence why mortgage rates ticked up. There is a hugely insightful conversation between Ray Dalio (creator of the world’s largest Hedge Fund, Bridgewater Capital) and former Head of the US Federal Reserve (the US Equivalent of the Bank of England) Paul Volcker discussing this very topic in similar economic conditions back in the 80’s. Well worth a watch HERE if you really want to get into the detail of this topic.
As we exited 2024, it would be nice to say that these themes were all resolved, but I suspect these will again be the main talking points of the year ahead. Especially that of inflation. As these conditions are now the ‘norm’ and having a base rate between 3-4% base on inflation and the wider economy is also going to be the norm unless something dramatic happens, we need to embrace these points and learn from them if we are to make sense of what is ahead. So, on that note…
2025 Predictions
We have picked out the 5 main themes that we feel are worth exploring for the year ahead, as they will either directly impact mortgage pricing, or the housing market in general. To that end, I am placing my head on the block to say that by the end of 2025, we will see:
- Bank Of England Base Rate at 4%
- This is quite a conservative prediction as some banks are much more aggressive in their view (Goldman Sachs notoriously saying that the base rate will be at 2.75% by this autumn!). Money markets certainly are not that optimistic, and the Bank of England are famously conservative, so predicting 4% is broadly a mid-point between the money market prediction and where some major lenders think the Base Rate will go. Also, with only eight meetings in 2025, cutting rates three out of eight times feels about right. This is one I hope I am wrong on as I think lower rates would be very beneficial, but with inflation currently above the target level and the OBR (Office for Budget Responsibility) not predicting it to go below 2% this year, this is a very complicated puzzle for the Bank of England to resolve.
- House Prices up by 5% Nationally
- That may seem a slightly higher figure than some would expect, but as Nationwide Building Society said that house prices went up 4.7% in 2024 and I feel 2025 will be very similar, if anything, a busier year on transactions, I can’t see growth slowing. Especially as London prices have lagged heavily since 2016. there will be quite big regional variations to the national picture, but I can see the London market finally coming back to life in 2025 which will be a major push on national prices. Both the cost and availability of mortgages will be better than in 2024, hence why I feel house prices will push on again.
- How many lenders will use EPCs in their Affordability Calculations = 15
- This is quite a complicated one, but in short, lenders are now actively looking at the efficiency of your home, as determined by your EPC – Energy Performance Certificate. The reason being is that the more efficient your home, the lower the running costs are, and therefore, you have greater capacity to borrow more. As we ended 2024 three major lenders have factored this into their models in how much they will lend you. As Halifax joined the party right at the end of the year, many major lenders will follow suit. I have been in various meetings over the last year or so where all major lenders are actively looking at building this into their processes so this will become the norm. At the moment, A & B rated properties benefit from a larger loan or better pricing on a mortgage. I believe this will be standard practice in the coming years, if not by the end of 2025. To that end, we are one of the few brokers in the UK to have a relationship with a firm that can retrofit your home as we actively want to play a part in decreasing your outgoings and being better for the environment. So, if you want to explore this, please do get in contact and we can discuss that in more detail to your specific circumstances.
- New homes built = 350,000
- With the new Labour Government pledging to build 1.5m new homes by the end of this parliament, this is simply the rate they need to go at! With planning and building taking so long in this country, this is probably the most optimistic of all the predictions. There is a bit of pent-up demand coming into 2025 so we may see this figure go up and down, but if Labour really are serious about this pledge, this needs to happen. Equally, if we are to keep house price inflation under control, that will only come with new affordable homes coming to market. One to keep a very close eye on.
- GDP up by 2.5%
- Forecasts from the Office of Budget Responsibility suggest GDP will be at 2% in 2025. My rationale for coming in slightly over this is the huge stimulus that the budget created at the end of last year. Also, the UK is starting to look quite good for inward investment this year due to issues with the traditional power houses of Europe in Germany and France. Both those situations may take time to resolve, so the UK has every chance of getting a jump on the year and finally getting growth up to a healthier level as productivity in the UK has been extremely poor since 2008. If not, we may be looking at even more tax rises in the coming years so I really do hope we crack this economic nut, as if not, a long period of stagflation awaits…
It will be interesting to see how these predictions fare in the next year. Just to state the obvious but these are purely my opinions and this does not constitute advice. If you want to explore what any of this may mean for you specifically, please do get in contact and one of the team will be very happy to discuss your personal situation in greater detail.
Money Market & Mortgage Rates
Money Market Rates as of 30/12/24
- 5 Year money up to 4.035%
- 2 Year money up to 4.243%
- UK Base Rate held at 4.75%
Source: chathamfinancial.com & Bank of EnglandSummary
Now more than ever, quality financial advice is needed. Not just to navigate the product options discussed above, but also the very tricky ‘affordability’ rules that lenders are imposing. This is how lenders determine how much they will lend you, which sways hugely on your income, outgoings, debts, commitments and spending patterns. Not all lenders look at things the same way, so that is why it is imperative you talk to an adviser who can find the best way forward for you.
Rose Capital Partners > Heron Financial
Rose Capital has partnered with Heron Financial Group. All ‘new business’ will go through Heron and we’ll intro you into the team there as needed. You can contact Heron directly here if you prefer. Over the coming weeks and months you will be updated personally on any changes that affect you