After a frenetic 2022, during which house prices hit record levels over the summer and economic turmoil ensued shortly after, the current situation is thankfully much less febrile.
Nevertheless, certain facts about the wider UK economy are irrefutable: for now, inflation remains stubbornly fixed in double digits.
Of course, the property bulls and bears continue to take opposite positions about what all of this may mean for the future direction of UK property prices.
Optimists suggest that a dramatic crash has been averted as current mortgage rates are predicted to fall as much as 25 per cent by the year end.
They also point to several of the UK’s largest lenders – including HSBC, Barclays, Lloyds Banking Group and NatWest – agreeing forbearance measures with the government to help struggling borrowers. These come in anticipation of a surge in late mortgage payments as 1.8mn people will need to re-mortgage when their fixed-rate deals expire this year.
Such measures, last used during the 2008-09 global financial crisis, are an attempt to avoid repossessions and alleviate borrowers’ financial pain. They include switching mortgage holders to interest-only deals or to competitive fixed-rate deals without an affordability test being required.
People have come round to the idea that the era of low interest rates is now over.
Shifting economic sentiment
According to Schroders, the average house in the UK currently costs more than eight times average earnings; in London, the ratio reaches 11 times salary.
However, the increased unaffordability of mortgages relative to net incomes, which are subject to both an inflationary and a fiscal squeeze, is being helped by the lower interest rates we are seeing lenders offering.
Although the negative stories of crashes and recession make for good headlines, the polarised views that they fuel are on the wane. To some degree, macroeconomic sentiment has begun to shift, albeit glacially, from one of uniform gloom to a slightly more nuanced outlook that is arguably more focused on logic than fear.
As a leading indicator of where things are headed in corporate earnings, for example, UK equity markets have been back on an upward trajectory for the past three months.
Notably, the shift in economic sentiment has been reflected by a simultaneous retreat in average rates for new two-year and five-year fixed mortgages; after rising from around 3 per cent a year ago to spike at 6.5 per cent last October, they have now fallen back towards the 5 per cent mark.
From a potential buyer’s viewpoint, these interest rates are perhaps the most critical element in the residential property equation since short-term swings directly impact on affordability, and in turn lenders’ willingness to lend.
After a remarkable 13 years of near total interest rate stability, the sudden and sharp swings of the past few months have been particularly dramatic.
