Mortgage Market Update – October 2024

As we wave goodbye to (what allegedly was) summer for another year and start eyeing up pumpkin spiced latte’s, it is a relatively lull period for the mortgage market in terms of news. We just had the Bank of England meeting in September, which was a hold, and with a budget due at the end of the month and the next Bank of England meeting in early November, its very much a holding pattern until then.

However, while the news is quiet it gives us a chance to reflect on what is driving the market which is the busiest it has been for many years. So what is causing this? Why are housing prices now rising again? Is this level of growth sustainable? This is what I would like to explore this month: 

Market Update

To me, we have some very old fashioned factors affecting the market, sprinkled in with perhaps what is the new order of things post Financial Crisis (back in 2008). The pattern now seems to be – big crisis, lull in activity, activity picks up, new big crisis – rinse and repeat. I don’t think I need to expand on what has caused that in recent years… so the question is what does that mean for the property and mortgage market?

Rising House Prices

House Prices are an obvious place to start. Like any market, when there is a decline in prices that initially causes hesitation. Why buy any asset when you feel it will be worth less in the future? That doesn’t make sense. This normally manifests in ‘low ball’ offers from buyers and unrealistic prices from sellers, until the new market equilibrium is reached. Unlike Shares, or other investments you can make, there is a floor to where prices can go, as – you need to live somewhere! Therefore there is always a baseline of activity as people upsize, downsize, marry, procreate and die. That may be a blunt assessment but its true. So what invariably happens is that when we get an uptick in activity, that will start to push prices up as we are seeing now. But not just due to inflation, up in ‘real terms’ as an economist would say.

The reason why house prices go up over time is extremely simple – we haven’t built enough homes for the last 40 years – In fact if you look at house price growth vs inflation over that period, house prices have gone up 2,629% (UK Average according to the Nationwide Building Society) vs Inflation at 1,056% (according to the Bank of England), that is over double the rate of growth and hence why homeownership is so much harder to attain now than in the past.

Low Mortgage Rates

There is also a direct correlation to mortgage activity and house prices. As we saw in the run up to the financial crisis, the ease at which mortgages were granted fueled a boom in house prices (while most mortgage rates were around 5% its also worth pointing out). Also, post about 2010 the ultra low interest rate environment also saw a spike in activity as credit was so cheap. Therefore cheap and easy credit will always drive house prices up. That was until the referendum result in 2016 and the new cycle of events as outlined above in a new VUCA world we now seem to live.

So why is all this important? If you look at the above trends that indicates we are on for a run of a growth in house prices fueled by lack of stock and lower mortgage rates. Which I suspect will run until the next major unforeseen event. That could be years (it could be weeks!) However, due to all the pent up demand that has been created in recent years I feel it will take a lot to take us off this track. Don’t get me wrong, I am not predicting a 2007 style housing bubble, but house prices (especially in London and the South East) have been very suppressed since 2016 and that won’t last forever. We could well be on a path of sustained house prices (which actually fuels mortgage lending as that frees up capital for banks to lend back out. More on that another time…), so the simple message from us is – take advantage of this time –  even if mortgage rates do creep down in the next 12 months, if the property you want to buy is 2-5% more expensive, that will wipe out any benefit in delaying your next move.

We’ll look very closely at what impact the budget may or may not have in our next update, but no matter what the budget holds, or the naysayers of ‘oh I wouldn’t buy/move now’, just look back at these long term trends as that tells you a lot. One conversation with your parents (or Grandparents!) for what price they bought their first home for will tell you all you need to know.

Money Market & Mortgage Rates