What’s happening with housing?

Rising rates dominated the news around housing and mortgage markets throughout 2022, setting the tone for an expected market downturn in 2023. After the latest Bank Rate rise in February increased repayments for those on variable rates, how will the mortgage and housing markets react?

Up and down

On 2 February, the Bank of England (BoE)’s Monetary Policy Committee (MPC) voted for a tenth consecutive increase to Bank Rate, taking the central rate to 4%. With inflation still close to record highs, Bank Rate is expected to keep rising until the middle of 2023, at which point market-watchers suggest it could peak.

In the short term, the latest rise will affect anyone with a tracker or variable rate mortgage through higher repayments. Between September 2022 and January 2023, a quarter of mortgage holders saw their monthly costs go up1. Those with longer-term fixed-rate mortgages are protected for now but could be forced to pay more when their current deal ends.

More positively, however, the number of providers offering fixed-rate mortgages below 4% has risen in recent weeks. Competition between lenders is driving fixed-rate deals to their lowest point in months. By the end of 2024, two-year fixes could drop below 4%, experts predict, before falling as low as 3% in 2024.


Boost for FTBs

Many first-time buyers (FTBs) will have breathed a sigh of relief in December when the government announced an extension to its Mortgage Guarantee Scheme until the end of 2023. Initially scheduled to run out at the end of 2022, the scheme supports lenders to offer 95% loan-to-value (LTV) mortgages by providing a guarantee for credit-worthy households.

Demand for high LTV products remains very high, meaning the outlook for FTBs with low deposits is now much better than it was a few months ago.


House price growth slows

The start of 2023 saw a further slowing in annual house price growth to 1.1%2, a marked drop from 2.8% recorded in December.

With ongoing cost-of-living challenges affecting many, experts predict further slowing in the months ahead. Raising the money for a deposit remains an obstacle for many first-time buyers, especially with the Help To Buy Equity Loan scheme due to end in March.

Despite slowing growth, “the overall affordability situation looks set to remain challenging in the near term,” according to Robert Gardner, Nationwide’s Chief Economist. The latest figures show that affordability has fallen across all the UK, with average mortgage repayments as a share of take-home pay now at or above the long-run average in all regions.


Your home may be repossessed if you do not keep up repayments on your mortgage

1Office for National Statistics, 2023, 2Nationwide House Price Index, 2023

6 April, 2023

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