Navigating the Financial Landscape: Lenders Kick Off 2024 with Mortgage Rate Cuts:

As we step into 2024, significant reductions in mortgage rates by leading lenders, including Halifax and Leeds Building Society, signal a dynamic start for the year in the ever-evolving landscape of property and finance.

Lending institutions have kicked off the new year with substantial reductions in mortgage rates. Halifax and Leeds Building Society swiftly announced rate cuts on the first working day of the year, with Halifax reducing its two-year fixed rate for existing customers by 0.83% to 4.81%, and Leeds cutting rates on several products by up to 0.49%.

The UK's annual inflation rate dipped to 3.9% in the twelve months to November, diminishing the likelihood of further interest rate hikes by the Bank of England. This has paved the way for lenders to initiate rate reductions throughout January. The banking sector, armed with new targets for the year, is now engaged in a market share battle amid a contracting market. Official figures released on December 29th revealed a 22% decline in UK property transactions in November compared to the same period the previous year.

The upcoming inflation release on January 17th holds significance. Confirmation that inflation is under control is expected to drive down long-term interest rates, providing lenders with the room to continue reducing mortgage rates. Despite the positive impact on the mortgage market, individuals transitioning from sub-2.5% mortgages in the first half of the year may experience a significant blow to their disposable income. Speculation is rife that the Bank of England could implement up to six interest rate cuts in 2024, starting as early as May.

These rate cuts are eagerly anticipated by UK businesses grappling with economic stagnation. A recent survey of 90 economists by the Financial Times indicated that almost all respondents foresaw flat economic growth or a modest 0.5% increase at best in the coming year. The Institute of Directors' survey on directors' optimism for the next twelve months, published recently, dropped to a four-month low.

Roger Barker, IOD's director of policy, emphasised that an early cut in interest rates would be justified to boost business confidence. The housing market has seen a period of stagnation, with house prices remaining flat between November and December, as reported by Nationwide on December 29th. The 1.8% decline over the year brings values down by 4.5% from the all-time high in late summer 2022.

Transactions during the final six months of the year ran approximately 10% below pre-pandemic levels, with mortgage-related transactions down by a fifth. Cash transactions, however, continue to surpass pre-Covid levels. Robert Gardner, Nationwide's Chief Economist, anticipates that a combination of income growth, slightly lower house prices, and mortgage rates may gradually improve affordability, though housing market activity is expected to remain subdued in the interim.

For those entering the property ladder, particularly challenging conditions persist. Nationwide highlighted that a borrower earning the average UK income, buying a typical first-time buyer property with a 20% deposit, would face a monthly mortgage payment equivalent to 38% of take-home pay, well above the long-term average of 30%. Stretched affordability and the conclusion of Help to Buy contributed to a 22% decline in first-time buyers, amounting to 290,000 during 2023, according to a report by Yorkshire Building Society.

Written by Veera Josey, 4th January 2024