Mortgage Woes: Homeowners’ Greatest Hurdle

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According to Halifax, the UK’s largest mortgage lender, mortgage costs continue to pose the biggest challenge for homebuyers and those nearing the end of their fixed-term deals. Despite this, the strain caused by higher interest rates may gradually ease as incomes rise and house price growth remains subdued, says Amanda Bryden, Halifax’s head of mortgages.


Recent data from Halifax indicates that the average UK house price in June was £288,455, a slight decrease of 0.2% from May’s average of £288,931. Despite this small monthly decline, house prices were 1.6% higher than a year ago, mirroring figures from the Nationwide Building Society.


Ms Bryden noted that the housing market is currently “delicately balanced” and very sensitive to potential changes in the Bank of England’s base rate. The central Bank began increasing its key interest rate in late 2021 to combat rising inflation, which surged as pandemic restrictions lifted and supply chain issues and spikes in food and energy prices followed Russia’s invasion of Ukraine. Currently, the Bank’s base rate is 5.25%, the highest in 16 years. However, there are hints that the Bank might lower rates at its next meeting on 1 August.


In the meantime, many homeowners reaching the end of their fixed-rate deals are now confronted with much higher mortgage rates. Last week, the Bank of England reported that approximately three million households will increase their mortgage payments over the next two years. The average rate for a two-year fixed deal is presently 5.93%, lower than last year’s peak of 6.86%, and major lenders have been reducing rates recently.


Halifax’s latest data also shows that Northern Ireland experienced the fastest regional house price growth, with a 4% increase from a year ago. London remains the most expensive region for property, with an average price of £536,306.
Sarah Coles, head of personal finance at Hargreaves Lansdown, stated that house prices and sales have been “tepid” for most of the year and are unlikely to improve soon. She attributed the market’s struggles to a combination of high mortgage rates and elevated house prices, with demand outpacing supply.


Addressing the property market is expected to be a priority for the new government in the upcoming weeks and months. During the election campaign, Labour promised to tackle the housing supply by building 1.5 million homes over the next parliament. This plan includes reforming planning rules and allowing development in lower-quality areas of the green belt, referred to as the “grey belt.” However, Sarah Coles warned that overhauling the planning system will likely be a “gradual and tortuous process.”


Halifax anticipates that property values will increase modestly through this year and into 2025. Meanwhile, some mortgage brokers suggest that resolving the election campaign could boost the market.

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