Written by Rosie Hooper, chartered financial planner at Quilter
The housing market is reeling from the higher interest rate environment and this is translating into a very quiet period for house sales. Net mortgage approvals for house purchases fell to 43,300 in September, the lowest level since January 2023.
Many people with house purchase ambitions are opting to sit on their hands for the moment to try to achieve a combination of lower house prices and hopefully lower mortgage costs. Mortgage rates have been steadily dropping but they are still eye wateringly expensive. In fact, the ‘effective’ interest rate – the actual interest paid – on newly drawn mortgages saw a 19 basis point increase and now sits at 5.01%.
How this behaviour ultimately plays out for the market is still unpredictable but if properties start to pile up during a time when demand is as muted as it is, it is likely that house prices will continue to drop to try to attract those buyers still keeping an eye on the market. We do suffer from a lack of housing stock in this country though and renting is proving to be more and more expensive so this will help coax buyers back to the market despite the difficult mortgage rate environment.
We are likely to see house prices continue to drop for the rest of this year and into next but if the Bank of England eventually starts to decrease interest rates in the future this should help make the market more competitive, once again lifting prices.
Borrowing of consumer credit continues to remain relatively steady with no big spikes which should indicate that while people’s finances are stretched they are not yet turning to credit cards to pay for large parts of their finances. Positively, people are also getting their heads turned by the higher savings rates being offered by NS&I.
Households’ net deposit to NS&I rose sharply to £7.7 billion in September, the highest since August 2020 (£9.8bn) which was during the gold rush prompted by savings amassed during lockdown. Whether this can be maintained during the winter months when energy costs once again rise is yet to be seen.
