Lower mortgage costs and additional interest rate cuts could potentially drive an increase in house prices for the remainder of the year, according to Halifax. The mortgage lender made this prediction following a slight rise in property prices in July after several months of stagnation.
Halifax highlighted that the recent drops in mortgage rates are “encouraging” for first-time buyers, those moving up the property ladder, or those refinancing.
However, the lender also cautioned that affordability issues and a shortage of available properties still present significant challenges for buyers.
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Amanda Bryden, head of mortgages at Halifax, stated, “Against the backdrop of lower mortgage rates and potential further [Bank of England] base rate reductions, we anticipate house prices to continue a modest upward trend throughout the remainder of this year.”
Last week, the Bank of England reduced interest rates to 5%—the first reduction since the pandemic began in March 2020. However, the governor warned against expecting a series of further cuts.
The Bank of England’s rate determines the borrowing costs set by High Street banks and lenders for mortgages and credit cards. Over the past two and a half years, higher rates have strained household finances, although returns for savers have improved.
Despite the decline in mortgage rates, current deals remain significantly higher than those from a few years ago, posing increased costs for homeowners refinancing or first-time buyers. As of Wednesday, the average two-year fixed mortgage was at 5.74%, and the typical five-year deal was at 5.36%.
In July, the UK’s largest lender reported that the average property cost £291,268, a rise of more than £2,200 compared to the previous month, following three relatively flat months. Amanda Bryden noted that annual house price growth to last month was 2.3%, the highest rate since the start of the year. Northern Ireland recorded the highest house price growth last month at 5.8%, while eastern England was the only region to see a decline.
Holly Tomlinson, a financial planner at wealth management company Quilter, suggested that the housing market could “start to heat up” after the Bank of England’s recent rate cut, the first in over four years. She mentioned that although the cut would have a minor impact on repayments for variable and tracker mortgages, and no effect on fixed-rate deals, the “change in rates does a lot for buyer and seller confidence.”
This sentiment could prompt more people to enter the market, increasing demand for homes. Tomlinson also pointed out that homeowners considering selling might be more inclined to proceed due to the perceived positive trend in rates.
However, rising house prices, while beneficial for current homeowners, make it more challenging for first-time buyers to enter the market.
Financial investors are betting that the Bank is more likely to cut interest rates in November rather than at its next meeting in September. Competition among lenders has intensified in recent weeks, both before and after the Bank’s latest rate decision. Recently, HSBC and Barclays have been competing over rates on five-year fixed deals, although these offers are generally targeted at borrowers who can provide a relatively large deposit.
Halifax, one of the UK’s largest mortgage lenders, bases its figures on house prices on its own lending data, which excludes cash buyers and buy-to-let deals. Notably, cash buyers account for about a third of housing sales.
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