Opening The Gates July 2024 UK Property Market Update

Hello and welcome to the third instalment of my LinkedIn newsletter where I will be reviewing what happened in the UK property market across the month of July and what immediate impact the result of the general election and base rate drop has had on activity levels and prices.

Former Prime Minister Harold Wilson was once quoted as saying ‘A week is a long time in politics’ and you could arguably say the same thing for the property market as well.

At the time of writing, it has been just over a month since the election and we are one week on from the Monetary Policy Committee voting in favour of the first Bank of England base rate reduction for over four years from 5.25% to 5%.

This comes after fourteen consecutive rises that was then followed by seven continuous pauses since the base rate first started increasing from 0.1% in December 2021.

Why is this important to know for estate agents?

A new study from Barclays suggests that consumers are less familiar with the factors that influence mortgage rates with 26% of people not understanding what the Bank of England Base Rate means and 35% had never heard of the Monetary Policy Committee. 

49% had not heard of swap rates which are an indication of where the base rate will be in the future and helps lenders determine pricing for fixed-rate mortgages. 

I’m sharing this information as it’s important to know that the general public are clearly not well enough informed when it comes to understanding the data that impacts their affordability when looking at moving home or remortgaging. 

Whenever I meet someone new and they find out what I do for a living they immediately say how high interest rates are and how unaffordable it is.

These opinions are misinformed and the infographic below makes for an interesting read.

Whilst the base rate of 5% today will feel higher than normal compared to 2009-2022 it is actually 0.91% lower than the long-term average of 5.91% dating all the way back to 1694.

I'm not for one minute saying affordability is not an issue as the gap between house prices to earnings ratio and the percentage of pay taken up by mortgage payments is higher in comparison to more recent years, but I want to aim to give a more balanced view of all the different factors.

Prior to the base rate reduction on 1st August, the Bank of England published their monthly Money and Credit statistics on 29th July for June 2024.

The results highlighted that the 'effective' interest rate (the actual interest paid) on newly drawn mortgages saw a slight increase of 3 basis points from 4.79% to 4.82% in June and similarly, the rate on the outstanding stock of mortgages rose by 4 basis points to 3.65% in June, from 3.61% in May.

What impact has the base rate reduction had on mortgages?

HSBC and Barclays have dropped five-year fixed mortgage rates to below 4%.

A new mortgage price war has broken out among some of Britain’s biggest lenders sending headline fixed rates back down below the psychologically important 4% mark.

Both Barclays and HSBC have launched sub 4% deals, a level not seen since the start of the year, though they come with strings attached.

HSBC’s best five-year fixed rate is now 3.92% though that is only available to premier banking customers who have a deposit of at least 40% and there is also a £1,499 fee.

The best rate for standard customers is 3.95% with a £999 fee.

Meanwhile Barclays best five-year rate comes down from 4.03% to 3.83%, again for Premier customers with a 40% deposit.

For other customers the best rate comes down from 4.04% to 3.84% and there is an £899 fee for both deals.

As you can see from the above data and chart, lenders are competing with one another for market share and this is positive news for those who have been waiting for rates to come down before entering the market.

However, you will see below that the expectation are that rates won't get below 3.5% and this will be in line with what the average has been since the year 2,000.

It's also important to note that on 1st August the Monetary Policy Committee were split with five votes in favour of reducing to 5% and four were in favour of pausing at 5.25%.

Therefore, we perhaps shouldn't expect a string of base rate cuts to happen through the rest of the year.

Now we can see what initial impact the base rate reduction has had on the price of mortgages, I'm going to look at what it might do to mortgage approvals going forward.

Mortgage approvals for house purchases have continued to show strong signs of returning to pre-pandemic levels where they were averaging 66,300 approvals per month between 2014-2019.

The figure for June 2024 was 59,976 approvals compared to 60,130 in the previous month of May and they were 9.65% higher than June 2023.

Now that the base rate has dropped and mortgages have come down slowly but surely, along with an increase in new instructions and sales agreed, I'm confident that mortgage approvals will continue on an upward trajectory as renewed positivity is injected into the property market.

I have covered off the base rate dropping, the price of interest rates, and the number of mortgage approvals, but now for the data you have all been waiting for.

Did the election have any impact on the UK property market in July?

As you will see from the below infographic, there are more properties for sale, new listings and sellers returning to the market are on the up, fewer properties withdrawing, sellers already on the market are adjusting their pricing expectations and more sales are being agreed, almost in line with the six-year average for 2019-2024.

This data highlights that we have seen the expected bounce that you usually find following an election and that the UK public continue to press on with things following a turbulent few years of political and economic uncertainty.

I had a conversation with David Mintz over WhatsApp not so long ago and he had an eloquent explanation as to why things such as a general election or base rate drop can have such a positive impact on activity in the market.

I'm going to do my best to summarise it starting with the fact that a stable market leads to a wait and see approach when it comes to potential buyers and sellers making their next move and it tends to be the changes I mention above that prompt them to act now.

I've reported for several months now what a stable market we have been in following the difficulties of 2023 and this being a positive thing, but David made me realise that this actually has the opposite effect of what we would hope for when it comes to transaction levels.

For example, when people ask an estate agent what is the market doing and the agent answers that it is stable, this makes people comfortable and therefore, they put off making decisions.

However, people decide to move when prices are showing growth or conversely, are forced to make difficult decisions if the market looks like it's on a downward trajectory.

He went on to say there is a boom that comes at the end of wars, pandemics, and an economic crisis.

Almost a euphoric feeling of survival and the need to stake your claim that you survived and this was very apparent following the great financial crash of 2008 and when the property market re-opened during Covid.

Judging by the data, it appears that this is also the case now and that people are deciding it is the right time to make their move and things can only get better now we seem to have passed the peak of mortgage rates.

Inflation has hit its target, the base rate has dropped, wages are growing, unemployment is still low, mortgage approvals and transactions are on the up, and the number of new properties entering the market and sales being agreed continues to rise.

Last but not least, the question that is always on the lips of buyers and sellers across the country; what is happening to house prices?

The latest UK House Price Index from HM Land Registry for May 2024 that was published on 17th July shows that the average UK house price is currently £285,201 and this is a 2.2% increase over the past 12 months and a 1.2% rise on the previous month of April.

Remember, this data is several months behind and reporting on sales that have been agreed long before there were any signs of the base rate coming down and interest rates starting to drop.

Average asking prices of new listings in July were up 3.27% compared to July 2023 and for sales agreed in July the figure was up 2.41% on July 2023.

The base rate being held at a 16-year high of 5.25% for one year between August 2023 and August 2024 has not appeared to cause house prices to decline and now that it has dropped to 5%, we appear to be on course for modest house price growth by the end of 2024.

There is most definitely an appetite for people to buy so long as they see value in the property, but over-inflated prices are clearly still putting buyers off and those sellers that are setting realistic prices from the outset are seeing their homes sell, but those that price too high end up either not selling or having to reduce their asking price considerably to get sold and taking a considerable amount of time to do so.

As market conditions continue to strengthen, I think we are possibly in for a very strong end to the year, especially for those agents who had been doing the hard work during the challenging times of 2023.

Thank you for reading the third edition of my newsletter and as always, I do hope you got value from it and enjoyed reading.

If you do have any questions relating to the article, please do feel free to contact me.

I will be back for the next instalment of my newsletter in early September where I will be reporting on what happened in the property market in August and if the post election bounce continues its momentum and if the drop in the base rate makes a difference to activity levels as well✌🏼

Simon Gates - Opening The Gates

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