Economic and mortgage market update for investors

The financial landscape has been shifting and here's the latest news and updates that could help you with your property decisions:

1. Bank of England's decision to increase rates: On 3 August, the Bank of England increased the Bank Rate from 5% to 5.25%. This is the 14th increase. Despite this, market analysis suggests that borrowing costs may have reached their zenith for the current cycle.

2. Longer-term fixed mortgage rates declining: Following the stabilisation of swap rates from their July peak, many mortgage providers have started to reduce their longer-term fixed rates. This comes after Nationwide became the pioneer in cutting fixed-rate mortgage deals for new customers by up to 0.55 percentage points. Several other lenders followed suit last week. This is good news and may mean further cuts in the coming months.

3. Inflation watch: The mortgage industry is eagerly awaiting the latest inflation data set to be released by the Office for National Statistics on 16 August. If inflation begins to decrease at a faster pace, it could introduce additional stability into the mortgage sector. However, with core inflation lingering near a 30-year high, another interest rate hike might be on the horizon in September.

4. UK economic growth: Between April and June, the UK economy registered a 0.2% growth, a slight improvement from the 0.1% recorded in the first quarter. While the Bank of England anticipates the UK to steer clear of a recession in 2023, it does foresee a stagnant economic period in the coming years. There are a host of factors that could impact this not least the war in the Ukraine and Russia that is still impacting utility costs for most homeowners.

5. Inflation status Even though June witnessed a notable drop in the rate of inflation, it currently remains elevated at 7.9%. Something to continue to watch.

6. Impact on homeowners: Roughly 8.5 million mortgage holders might end up allocating at least a fifth of their income towards mortgage payments if the rates persist at these levels. This figure has risen considerably from 5.1 million in March 2022.

Selling property in current times

Given the prevailing mortgage conditions and frequent interest rate alterations, homeowners and landlords considering selling might be in a quandary. The 14th consecutive rise, positioning the base rate at 5.25% (its highest since March 2008), has significantly affected those with variable-rate mortgages or those nearing the end of their fixed-rate deals. 

July recorded a dip in the average house prices by £905, which might be advantageous for potential buyers but not so much for sellers. For those contemplating selling their property, the key might lie in setting the right price from the outset. 

At Vesta, our view is that the price set at the outset needs to be realistic and consider current market conditions to attract interest. In most locations, you will not get a premium as buyers are being very cautious. Vendors should also take into account the significant growth they have had over recent years.

Fewer properties being listed, especially those with good yields, are still attracting competitive interest from buyers with means good (but fair) prices are being achieved.

In closing

The property market's dynamic nature requires both buyers and sellers to stay updated and make informed decisions. Whether you're looking to buy, sell, or hold, understanding the ongoing trends and economic indicators is paramount.