The inflation figures that the government release this week could be a big influence on the direction of movement of house prices.
What Could Happen?
Tom Bill, head of UK residential research at Knight Frank shares his thoughts in Property Industry Eye – “Rarely has one month’s inflation figure been so widely anticipated by such a large group of homeowners. Whether you are buying, selling, or re-mortgaging, this week’s number should provide a useful steer on the direction of travel for interest rates.”
- Interest Rates & Mortgages: If the inflation number is low, people might think the main interest rate (bank rate) won’t go up much more. If the inflation number is high, people might expect the interest rate to stay higher for longer. This affects the choice between different types of mortgages, like fixed-rate or tracker.
- Fixed-rate mortgages have a set interest rate that doesn’t change.
- Tracker mortgages change with the main bank rate.
- Mortgage Lenders’ Behavior: Recently, some mortgage providers have been reducing their rates, which is partly because last month’s inflation data was better than expected. The cost for lenders to get funds for 5-year fixed-rate mortgages (known as the five-year swap rate) was just above 5% last week, which is much higher than the less than 1% rate two years ago.
- UK Housing Market: Despite some negative talk, the UK property market is stable. Prices have decreased a bit, but it’s not a huge drop. Local property prices can vary, so the national numbers might not reflect what’s happening in specific neighborhoods.
- Reasons for Housing Demand: There are a few reasons people are still buying homes:
- Wages are growing.
- People have saved money during lockdowns.
- Mortgage terms are longer, giving more flexibility.
- Lenders have been more flexible.
- Fixed-rate mortgage deals have been popular.
- The UK’s economic performance (GDP) is better than expected, which gives people confidence.
- London Market: London’s property market did better in July compared to the rest of the UK. This is because London property prices didn’t rise much during the pandemic.
- Buyers vs. Sellers: Right now, there’s a gap between what buyers want to pay and what sellers want to get. Buyers are hoping for lower prices like those predicted for the future, while sellers want prices like those during the pandemic.
- Mortgage Approvals: The number of approved mortgages in June was lower than the average in recent years, excluding 2020. This means mortgage providers are eager to lend money, which could help keep mortgage rates lower.
- A Thought on Data Release: An economist suggests releasing inflation data more often. Right now, it’s released monthly, but with technology, we could get this info more frequently. This would help avoid sudden surprises in the market.
In a Nutshell
Inflation data affects housing prices, mortgage rates, and overall market sentiment. Recent data has shown some stability in the UK property market. There are reasons to be optimistic, like wage growth and economic performance. There’s a bit of a tug-of-war between what buyers and sellers want in terms of prices, but mortgage lenders are keen to lend. Some think releasing inflation data more frequently might help everyone, especially those trying to get a mortgage.