New report shows we are now back to pre-Covid levels of annual mortgage spending
The UK housing market has experienced a resurgence in 2024, with mortgage lending playing a crucial role in driving growth. According to new research by Savills, spending on property purchases reached £88.3 billion in the second quarter of this year, marking an 8% increase from the same period in 2023. This uptick has pushed total annual spending past £350 billion, returning the market to its pre-pandemic levels.
A key factor in this recovery has been a 22% rise in mortgage lending, signalling renewed stability in the mortgage markets. First-time buyers have been particularly active, with their total spending exceeding £21 billion in the second quarter, a £4.1 billion jump compared to the previous year. This group now accounts for 24% of all market spending, the highest level in eight years.
Lucian Cook, head of residential research at Savills, highlighted the role of falling interest rates in encouraging more buyers to enter the market. He remarked, "As interest rates continue to ease, we can expect to see the size of the housing market expand further over the next 12 months. Lower mortgage costs will encourage a wider range of buyers back to the housing market."
Home mover activity has also seen significant growth, with mortgage debt rising by 18%, contributing an additional £2.7 billion to the market. In the buy-to-let sector, mortgage debt grew by 25%, reflecting a surge of nearly £500 million.
And in good news for intermediaries, while lending has seen a substantial increase, cash buyers have played a diminishing role in the market. Their spending fell by around £2 billion in Q2 2024, now accounting for 39% of the market, down from 43% in 2023.
The overall market outlook remains optimistic, particularly for those looking to upsize. As Cook noted, "We should see an increase in upsizers who put plans to trade up the housing market on hold in the face of higher mortgage costs." He suggested that many prospective buyers might still be waiting until after the government's October budget before making a move.
Bank of England data reveals that mortgage approvals rose slightly in July, reaching 62,000, the highest figure since September 2022. At the same time, the cost of a five-year fixed-rate mortgage has begun to fall. For borrowers with a 75% loan-to-value ratio, rates dropped from 4.5% in June to 3.94% by the end of August, providing some relief for those nearing the end of their fixed-rate terms.
Lower mortgage rates are expected to support the housing market through the remainder of the year. However, while the mainstream market may benefit from these reduced costs, higher-end properties may see less activity, as wealthy buyers face the potential for increased tax burdens and other financial pressures.
Highlights from Savills data
In August, UK house prices dipped by 0.2%, yet annual growth reached 2.4%, marking the highest yearly increase since December 2022. This growth follows four consecutive months of annual price increases. July saw a significant rise in mortgage approvals, up 26% compared to the same month in 2023, although still 7% below the average seen between 2017 and 2019.
Indicators of market activity have remained positive, with new property listings in August up by 7% from the pre-pandemic average, and agreed sales increasing by 4%. Falling mortgage rates have been a key driver of this resurgence, with the base rate cut in early August providing additional support. Analysts expect further interest rate reductions, including a possible 25 basis point cut in November, though persistent inflation may slow the pace of these cuts.
Regionally, the south-east of England saw the steepest house price declines, with areas like Canterbury, Dover, and Thanet experiencing drops of over 7%. In contrast, lower-value markets in northern England and Scotland saw the most substantial annual growth, particularly in Inverclyde, North Ayrshire, and Hartlepool.
In the rental market, annual growth slowed slightly to 5.4% in July, down from 5.5% in June. The strongest rental price increases occurred in the North East and Scotland, while London’s rental market saw growth slow to 2.5%, largely due to affordability pressures. Despite some narrowing of the supply and demand gap in the rental sector, the imbalance remains significant, continuing to drive up rental prices across the country
