Mortgage rates unlikely to drop below 4% in 2024

Buyers holding out for lower mortgage rates in 2024 may be disappointed, as they are unlikely to decline much further this year, even if inflation and the Base Rate edge lower.

Our Executive Director of Research, Richard Donnell, says: ‘Expectations of lower interest rates are already priced into fixed rate mortgages today.

‘Lower interest rates would likely result in further modest declines in mortgage rates but how far depends on how low money markets see base rates falling.

‘Economists currently expect base rates to fall to 3.5% by the end of 2025, which would imply mortgage rates remaining in and around the 4%+ range.’

Why are mortgage rates going down?

Mortgage rates began to go down in the latter half of 2023, as inflation dropped from 6.3% in September to 4.2% in December.

In June this year, inflation hit its 2% target, but it has risen slightly since then and is currently sitting at 2.2%.

However, the Bank of England held the base rate at 5.25% 7 times in a row, until it met in August this year, when it lowered it to 5%.

By the end of 2025, it's expected to lower it to 3.5%.

The bank rate determines the interest rate the Bank of England pays to commercial banks that hold money with them. It influences the rates those banks charge people to borrow money or pay on their savings.

What factors affect interest rates?

Inflation is the main reason interest rates have been high in the UK over the last 30 months. An unexpected rise in demand - or decrease in supply - can cause inflation to rise.

At the end of 2021, the Bank of England began to raise the base rate in order to reduce inflation and help slow down price rises for everyday items including food, petrol, gas and electricity.

It has worked - and inflation is currently hovering around its 2% target, but the Bank of England needs to keep the base rate high enough to ensure inflation doesn't rise again.

Global shocks can also have an impact on inflation, such as wars, pandemics or the blockage of major transport routes like the Suez Canal, as they affect the flow of goods around the globe.

How buyer affordability could improve in 2024

All that said, there are other ways in which buyer affordability is likely to improve this year: and that’s wages rising while house prices hold steady.

This trend is happening already, and it’s improving confidence among buyers.

‘Rising household disposable incomes are expected to be the primary driver of improved housing affordability over 2024,’ says Donnell.

‘Disposable incomes are projected to increase by 3.5% over 2024, while house prices look set to remain broadly flat over the year.’

In fact, momentum in the housing market is already ticking up and the number of sales agreed has climbed 9% year-on-year.

This, in turn, is encouraging more sellers to come to market, improving the choice available for buyers.

More choice for buyers in 2024

There are now more homes for sale than at any point in the last six years. This is improving choice for home buyers and supporting more sales.

The average estate agent has 33 homes for sale, which is 16% higher than a year ago.

More supply means more sellers, most of whom are also buyers.

And more choice for buyers means more opportunity for wriggle room when it comes to paying the asking price.

‘Our view is that a greater availability of homes for sale will keep price rises in check,’ says Donnell.

‘This means buyers have more choice and room to negotiate, especially where homes are failing to attract buyer interest in a timely manner.’

Affordable areas remain popular with buyers

While momentum is up among buyers and sellers across the UK, in more challenging mortgage rate times, it’s the affordable areas that are proving to be the biggest draw for buyers.

‘Sales activity is up across the board, with the strongest growth in sales taking place in areas with more affordable house prices, such as Yorkshire and the Humber (11%) and the North West (13%),’ says Donnell.

Meanwhile, the strongest growth in new sellers listing homes can be seen in the South West (28%) and North East (26%).

Over in the capital, the supply of homes for sale is just 8% higher, which means house prices are rebounding faster here than other parts of the UK, as more buyers compete for properties.

Asking price discounts narrow as house prices hold steady

While it remains a buyers’ market right now, buyers should know that the discounts being offered by sellers are starting to get smaller.

UK buyers are currently paying 96.8% of the asking price, which is up from 95.6% last October.

In value terms, this averages at £16,600 below the asking price for sales agreed in June 2024, compared to £23,000 below the asking price in October 2023.

There continues to be a north/south divide in house prices, with homes in the south continuing to register house price falls as homes in the north see house price growth.

But all areas are recording higher annual price inflation than six months ago, as sales volumes recover and pricing levels firm.

So while there’s still room to negotiate, house prices are starting to hold steady in 2024 and we don’t expect to see a further fall in property prices this year.

What are the four types of homes most likely to sell within 30 days?

2-bed terraced homes aren’t the only property type to sell quickly. The other types of homes that sell the fastest within a month are:

• 2-bed semi-detached homes

• 3-bed terraced homes

• 3-bed semi-detached homes

Collectively, these four property types make up 46% of UK homes, but only 32% of all homes listed for sale. This mismatch signals an undersupply of more affordable family homes, which encourages stronger competition amongst buyers. People looking to sell these types of homes can expect more early offers than owners of larger houses and flats - as long as they price their homes correctly.

What’s the slowest-selling property type?

Detached homes with 4 bedrooms or more take the longest time to find a buyer, with an average of 40 days. This is 13 days slower than 2-bed terraced homes.

Earlier this year, we reported a spike in supply of 4-bed homes for sale, boosting the choice for those looking to buy large homes. This, combined with weaker demand due to higher mortgage rates, means buyers take longer to decide to buy larger homes.

What are the regional variations in time to sell a home?

Our research also shows local variations in time to agree a sale, with available stock type, demand and pricing playing a role.

The popularity of 2-bed terraced homes is most evident in the South West, Yorkshire and the Humber, West Midlands and parts of the London commuter belt.

Flats, which typically take longer to sell than houses, are the fastest-selling property type in the North West, particularly in Manchester, Liverpool and Warrington.

Moving away from the UK's major cities, 3-bed homes are still the fastest-selling.

Detached houses with 4 bedrooms or more are currently the slowest-selling, but we also find examples of terraced and semi-detached homes with the same number of bedrooms to be the fastest-selling homes. This includes parts of Cambridgeshire, mid-Wales, Northamptonshire and the Scottish Highlands.

What’s next for time to sell?

How long it takes to sell a home varies from season to season. Typically, homes sell a week faster in the first six months of the year and we can expect fewer homes to achieve a sale within 30 days in the coming months of 2024.

Mortgage rates have fallen to an average of 4.5-5% which is enough to support more sales. A cut to the base rate this year could boost market sentiment, and support demand and the pace at which sales are agreed.

Homes that are not well-presented or priced incorrectly for the local market will continue to take longer to achieve a sale or may not sell at all. Homes that have had to undergo an asking price reduction of 5% or more are taking an average of 70 days to agree a sale, which is over 2x the average. This shows the importance of talking to local estate agents to decide on the most suitable asking price. It gives you the best chance to attract buyer demand and boost the possibility of getting a sale agreed.

How will this impact home buyers and the housing market?

The housing market is steadily adjusting to higher mortgage rates, with the worst of the impact felt in 2023.

2024 has got off to a good start: households that put decisions on hold last year have returned to the market knowing that base rates aren’t going to rise any higher.

The housing market is on track for 10% more homeowners moving compared to last year, and Zoopla expects average house prices to be 2% higher by the end of the year.

A key sign of confidence returning to the sales market is that buyers are paying almost 97% of the asking price. This is the highest it’s been for 18 months.

Mortgage rates of 4-5%, while higher than the ultra low rates of 2019-2021, are becoming more manageable for home buyers. This is demonstrated by more sellers and more sales being agreed. Further growth in household incomes will help improve affordability, especially as we expect incomes to rise faster than house prices over the next 18 months.

What’s the impact on the mortgage market?

The mortgage market remains very competitive with lenders offering a wide range of mortgage deals for all types of buyer. Rates are changing all the time and responding to the outlook for the cost of borrowing.

If you’re looking to take out a new mortgage within the next six months, you can approach individual banks and building societies to find out their best rates. Or, you can work with a mortgage broker who will scour the market to find the best deals available to you.

Mojo Mortgages is part of the Zoopla family and works with over 70 different lenders across thousands of mortgage products.

Mojo won’t charge you for their services, because they charge the lender you choose to go with instead.

And if mortgage rates drop between now and the time your deal is due to start, you can ask them to rescan the mortgage market for you.