After house prices stalled towards the end of last year 2024 has seen them make up some ground with both Halifax and Nationwide reporting modest house price gains.
Last week Halifax reported average house prices rose by +0.4% in February, the fifth monthly rise in a row - or £1,091 in cash terms, with the average house price now £291,699.
Highest Rate
Meanwhile, just a week earlier Nationwide reported UK house prices rose 0.7% in February.
That’s positive news for house prices from two of the country’s most respected lenders. But what about mortgage rates?
Mortgage Rates
While house prices have been edging up mortgage rates in general have been edging down although they are starting to stabilise, if not moving slightly back up while lenders get comfortable with their exposure to risk.
Indeed, lenders’ appetite seems to be following a shift amongst investors’ views towards Bank of England base rate with hints of interest rate cuts to come later in the year as inflation hopefully heads down too.
Inflation
Inflation is basically how we measure how much the prices of goods (such as food or televisions) and services (such as haircuts or train tickets) have gone up over time.
The Bank of England’s inflation rate target is 2% and it’s falling faster than expected from the highs it reached after ‘that Liz Truss Budget’.
Today it stands at 4% - which means that prices are 4% higher (on average) than they were a year ago. For example, if a loaf of bread cost £1 a year ago and now it’s £1.04 then its price has risen by 4%.
Confidence
And it’s those figures that give confidence to both investors and lenders.
More competition amongst the top 10 mortgage lenders – Lloyds Banking Group, Nationwide, NatWest, Santander, Barclays, HSBC, Virgin Money, Coventry Building Society, Yorkshire Building Society and TSB Bank – coupled with their own risk appetite means that rates between the top 10 will fluctuate as they try to manage the amount of business that they can process.
Much like filling a bath, lenders use mortgage rates to control the amount of business that flows in.
Reducing Rates
But by turning the tap on, or reducing rates, the bath can quickly fill up and too many mortgages could lead to overflowing, or in this case a drop in service levels as they try to cope with increased business.
The improved outlook for rates on money markets and better than expected inflation figures means lenders are able to play with their prices more – which also means it’s not going to be too unusual to see one lender, say HSBC, upping its mortgage rates slightly one day and Halifax reducing their own mortgage rates the next, irrespective of how cautious the Bank of England is sounding.
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