Two-year fixed rate mortgages in the UK have fallen below the 6% mark for the first time since June this year. This drop might signal a potential upswing in the housing market, which had seen a slump in recent months.

A Glance at the Current Market

As of October, the latest available data shows that mortgage approvals for new purchases have declined from 54,700 in June to 47,400. This reduction points to a cooling in the housing market, but the recent dip in mortgage rates brings a glimmer of hope. Experts suggest that these lower rates could lead to an increase in mortgage approvals, which would be a positive sign for the property market in early 2024.

The Relationship Between Mortgage Rates and House Prices

It’s essential to understand how mortgage rates impact house prices. According to the Office for National Statistics (ONS), there’s typically a three to four-month lag between changes in mortgage rates and their effect on house prices. With mortgage rates peaking at 6.85% in early August, the impact of these higher rates was reflected in the house price data for the latter part of the year. However, with the recent drop in mortgage rates, we may not see a corresponding rise in house prices until spring.

Expert Insights

Sarah Coles, head of personal finance at Hargreaves Lansdown, offers her analysis. She notes that two-year mortgage rates falling below 6% is significant and could attract more buyers back to the market. This change would be a relief for sellers who have struggled to attract interest in their properties in recent months.

Coles explains that mortgage rates have been volatile, especially after the mini-Budget at the end of 2022. Initially, rates climbed but have been gradually decreasing, with some fluctuations due to varying inflation rates. The peak in August has since been followed by a decline as the market adjusts to the expectation of peak interest rates being behind us.

Impact on Mortgage Approvals

This fluctuation in mortgage rates significantly impacted mortgage approvals, which saw a decline from June to September before slightly recovering in October. Coles believes the fall below the 6% threshold could psychologically encourage more buyers, but she warns not to expect a dramatic market shift. With expectations of further rate drops, some potential buyers may choose to wait.

Looking Forward

Coles emphasises that while mortgage approvals might increase towards the end of 2023, house prices may take longer to respond, likely not showing noticeable changes until spring. The rest of the year’s sales figures are expected to reflect the higher mortgage rates experienced over the summer and autumn, which may not be particularly impressive.