A prominent investment platform says the recent small house price rises recorded by both the Nationwide and the Halifax are merely the calm before the storm.

Alice Haine of investment service BestInvest says the Bank of England’s 14 consecutive base rate rises have yet to fully filter into the market – and when they do, next year, it’s a case of more house price falls.

The most recent Halifax index suggests the worst may be over. It says typical house prices rose 0.5 per cent in November – the second consecutive monthly increase, although this does not stop them being 1.0 per cent lower over the past year as a whole. 

According to the Halifax the average house now costs £283,615, around £40,000 above pre-pandemic levels.

Northern Ireland has shown the strongest annual growth – up 2.3 per cent in a year, while the South East of England is struggling most, down 5.7 per cent in a year.

But Haine insists the picture is more nuanced.

“The UK housing market has certainly remained resilient in 2023 despite multiple challenges – high inflation, rapidly rising interest rates and skyrocketing borrowing costs – stretching affordability levels and forcing some prospective buyers and sellers to abandon moving plans until conditions improve. 

“While many homeowners have already faced the ultimate challenge – a jump in monthly repayments after their cheap fixed rate came to an end – many are still benefitting from the protection of an existing fixed deal.  As those deals expire, however, more homeowners will be forced to deal with significantly higher repayments caused by the base rate rising from an all-time low of 0.1 per cent in December 2021 to the current level of 5.25 per cent.”

She says that with the Bank of England expected to hold interest rates at this high level for some time yet, it means mortgage rates may soften further as lenders compete for business – but not as rapidly as borrowers may want.  

Mortgage rates have already eased from their July high when the average two-year fixed rate climbed to a high of 6.86 per cent. Today, it is sitting at a slightly more palatable 6.02 per cent, while an average five-year fixed rate is 5.63 per cent as the rate outlook improves. These rates are still more than double the level many became accustomed to in recent years – a situation that constrains how much people can borrow when they buy a house. 

Haine says: “However expensive a new mortgage will be, locking in a fresh deal up to six months ahead of a product expiring is key to prevent a mortgage reverting to a lender’s ultra expensive Standard Variable Rate, with the average SVR remaining high at 8.19 peer centr. Securing a new mortgage early, up to six months ahead of an existing deal expiring, does not rule borrowers out if better rates come online as they have the freedom to switch to a more attractive deal right up to the point their new product goes live.”

And that’s where potential hope lies for fleet footed investors. 

Haine continues: “The real anxiety in this uncertain property market will be felt by sellers who may feel nervous about listing their home. Buyers are likely to negotiate hard as the market swings in their favour, with cash buyers in the strongest position to swoop in and snap up any distressed sales. Mortgage arrears are already on the rise, increasing by nine per cent in the third quarter of this year on the previous three months. Though they account for less than one per cent of the total number of outstanding mortgages, the fallout from two years or high inflation and high interest rates will continue to cause difficulties for the market well into the new year. 

“Add in the troublesome combination of high house prices and elevated mortgage rates making it hard for people, particularly those on low incomes, to raise the deposit needed to buy the home they want, and uncertainty is likely to persist for buyers and sellers alike for some time to come.”