Falling Mortgage Rates: Catalyst for a Resurgent UK Housing Market in 2024?

In a recent forecast, Knight Frank, a prominent player in both real estate and mortgage services, suggests that a potential reduction in mortgage rates, possibly as early as February or more likely in Q2 of the coming year, could serve as a trigger for a significant rebound in the housing market.

The current climate has left both buyers and sellers feeling somewhat apprehensive. Over the past three years, mortgage rates have tripled, and uncertainties loom regarding the peak of the bank rate, political stability, and ongoing international conflicts. This uncertainty has even led to the absence of the typical autumn rebound in the UK housing market this year, as noted by Knight Frank.

Despite a 20% decrease in trading volumes, the agency has observed some positive indicators. Particularly noteworthy is the unexpected drop in inflation from 6.7% to 4.6%. Underlying inflation, propelled by a robust job market, has also cooled to 5.7%, presenting a positive outlook for those involved in property transactions or considering re-mortgaging.

Knight Frank interprets these developments as unequivocally good news, as the Bank of England's efforts to curb inflation by raising rates seem to be nearing completion. Goldman Sachs even speculates that the Bank of England could begin cutting rates as early as February 2024, albeit in response to a weaker-than-expected economy.

In a span of just two months, Knight Frank Finance has observed a reduction in the cheapest five-year fixed-rate mortgages from over 5.0% to nearly 4.5%. However, Simon Gammon, Head of Knight Frank Finance, cautions that while this drop indicates a more positive outlook among lenders, thinning margins may pose challenges, especially in a low-volume housing market.

As mortgage costs decline, there is a growing likelihood of a seasonal rebound in the housing market next spring. Nonetheless, potential hurdles linger. Despite economic uncertainties diminishing, political and geopolitical risks persist. A looming general election could instil a national sense of uncertainty, and any escalation in the Middle East conflict might have inflationary implications, potentially unsettling energy markets and applying upward pressure on rates.

In summary, while the UK housing market outlook is improving, challenges remain on the horizon, and 2024 may not be entirely hurdle-free.