How optimistic is the mortgage industry?

As days go, this past 24 hours has been like a game of two halves for the property and financial services markets. 

There was the encouraging update from the Office for National Statistics that the average house price had increased by 2.7% to £288,000, in the 12 months to June 2024 - the fourth consecutive month with an annual rise in prices.

But news came, too, that inflation had risen for the first time this year, to 2.2% - in part due to a fall in energy prices, it’s suggested. This may worry those who are counting on a further base rate cut in September, following the Bank of England’s decision, two weeks ago, to finally lower it after four years.

So, how optimistic does the industry feel in the light of both lots of data? Are there still reasons to be cheerful?

The rise in inflation was to be expected following the base rate cut, according to Gerard Boon, managing director of Boon Brokers – and it remained closer to the Bank of England’s target than anticipated, he said.

“We still remain optimistic that the housing market will continue its recovery,” commented Boon (pictured left).  “It seems likely that the Bank of England will only cut the base rate once the inflation rate falls back to the 2% target. But a cut at some stage in Q4 of this year seems realistic.

“We do not expect mortgage lenders to increase their interest rates. We believe that mortgage lenders will have already factored in a marginal rise in inflation in their latest product changes introduced over the last couple of weeks.”

Broker Richard Campo, head of growth at Heron Financial, also welcomed the fact that inflation did not rise by as much as some economists had predicted.

“I expect we may well see the BoE cut rates two to three times more this year, and a similar story next year, meaning we should start to see most lenders offering fixed rates starting with a three before the year is out,” reasoned Campo (pictured centre).

“As the cost of finance starts to fall, more people will start to move, especially as many have had to sit tight for the last three to four years as various plagues, wars and economic turmoil have led many people to put off plans of moving until things have stabilised. We have seen quite an uptick in enquiries for people looking to move home, particularly larger purchases of £1 million plus - that always tends to signal the start of a strong market.”

Will there be a base rate cut in September?

The housing market crash “the doom merchants predicted” had not transpired, declared Michelle Lawson, mortgage adviser and director at  Lawson Financial. She believes there may still be a September rate cut.

“With inflation you have to look at the underlying figures and this is the part that has actually gone down,” observed Lawson (pictured right). “The more worrying stat is the increase in rents which is due to the exodus of the landlords from the sector, as this will only heighten the supply and demand issues and push these up further. The government need to get a grip of the sector currently, before even contemplating mandating the unattainable new build targets.”

John Phillips, CEO of broker Just Mortgages and Spicerhaart estate agents, heralded the resilience of the housing market, though he cautioned that while higher house prices are good news for the economy, they can create challenges, particularly for first-time buyers.

“High inflation hasn’t helped however, increasing pressure on disposable income and the ability to save for deposits,” Phillips said. “All in all though, appetite is absolutely there across the market, and we are hugely optimistic for the rest of the year.

“Given the super cautious approach of the Bank of England just to reach this first cut, I’m not sure many really expected the MPC (Monetary Policy Committee) to launch straight into a campaign of successive rate cuts. It still feels like we are on a path of interest rate reductions. It may just be a case that this process takes longer.”

Read More: ONS reports fourth consecutive rise in house prices

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The Bank of England had proved very resistant to dropping the base rate, pointed out Colin Baxter, director and mortgage adviser at Mortgages In Lincoln.

“I’m not counting on the rate dropping much more this year,” he shared. “The market is still fragile, but generally buoyant and with the softening of swap rates bringing sub-4% rates, I am optimistic that we have a solid market moving forward.”

A second base rate cut isn’t anticipated either by Karl Wilkinson, CEO of mortgage and protection advisers Access Financial Services, when the Bank of England meets again on September 19. But he believes  the market is picking up slowly.

“The outlook is still positive,”  Wilkinson said. “The Bank’s Monetary Policy Report, published earlier this month, predicts that inflation will calm down in the coming months and years, and now that exorbitant fuel costs are out of the equation, they’ll get a clearer view on persistent price pressures. I would be surprised if we didn’t have another rate drop before the end of the year.”

Meanwhile, Alistair Ewing, managing director of specialist mortgage broker The Lending Channel, reported that lead flow is still very strong in his business and is expected to continue.

“Consumers are at last getting used to a higher rate environment,” he noted. “With wage growth remaining ahead of inflation still, there is definitely a feeling of optimism. Overall, we are seeing strong demand across all sectors of  the mortgage market.”