01 February 2023
If you are covering the Nationwide House Price Index, please see the following comment from Karen Noye, mortgage expert at Quilter:
"While house prices have declined for the fifth month in a row, the severity of the downturn in the housing market may not be as acute as originally predicted. One factor contributing to this is that although many people will see significant increases in their mortgage bills, rates are not expected to be as high as feared. Fixed rate deals are approaching 4%, which will put strain on many households' finances, but it will not cause as widespread pain as original forecasts suggested.
"Yesterday, Bank of England data for December showed mortgage approvals dropped significantly and if this lack of demand continues, it will continue to depress house prices. However, if there is not a large influx of stock in the market as people sell up to achieve lower mortgage payments or energy bills, there may only be a small drop in house prices before they reach a shallow trough and increase again. The interest rate decision tomorrow will impact the extent to which house prices drop.
"An increase in the interest rate may also affect the type of mortgage products people are looking to take out. For example, tracker mortgages have recently become more popular, but as rates decrease, people are returning to fixed rate deals for the security of knowing their payments each month. With the base rate expected to rise, some borrowers are leaning towards fixed rates again.
"However, if a borrower's mortgage payments are well within their affordability, a tracker with no early repayment charges can be more appealing because it provides extra flexibility and the potential to pay less over the term of the deal. But there is a risk that this will not be the case if rates continue to increase. While the outlook is looking slightly less uncertain, there are still a number of factors that could influence the direction of the market in the next few weeks and months."
