After a lengthy period of UK house prices seeing double digit annual growth, prices fell last year and experts predict more are on the horizon, but what does this mean if you’re thinking about remortgaging?
The average house price fell steadily over the first half of 2023, before beginning to recover towards the end of the year. The average home according to Halifax’s latest House Price Index now costs £291,029.
While January’s figures were £3,785 higher than December’s figures, experts predict that further falls of between 2% and 4% could be in store. Here, we look at why house prices are falling, and the impact this is likely to have on homeowners planning to remortgage.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
Why are house prices falling?
Rising mortgage rates combined with soaring living costs have put many people off buying a home or moving up the property ladder. When demand for property reduces, house prices tend to fall.
Kim Kinnaird, director at Halifax Mortgages, said: “It’s fair to say that house prices have proven more resilient than expected so far this year, despite higher interest rates weighing on buyer demand. However, there is always a lag-effect where rate increases are concerned, and we may now be seeing a greater impact from higher mortgage costs flowing through to house prices. Increased volatility month-to-month is also to be expected when activity levels are lower, though overall the pace of decline remains in line with our outlook for the year as a whole.
“Market activity levels slowed during August, and while there is always a seasonality effect at this time of year, it also isn’t surprising given the pace of mortgage rate increases over June and July. While these did ease last month, rates remain much higher compared to recent years. This may well have prompted prospective buyers to defer transactions in the hope of some stability, and greater clarity on the future direction of rates in the coming months.”
House prices have also been affected by the disastrous mini-Budget last October, which promised tax cuts which many feared were under-funded. Karen Noye, mortgage expert at Quilter said: “When Liz Truss and Kwasi Kwarteng’s infamous plans to get the economy motoring were announced in late September, the markets reacted violently and subsequently high long term predictions for interest rate hikes were quickly priced into mortgage products by lenders.
“This brought an abrupt end to what has been a long era of cheap money for property purchases. Increased rates, sky high inflation and general uncertainty will quickly put lots of potential first time buyers and movers off, reducing demand and house prices with it.”
Should I remortgage when house prices are falling?
Falling house prices shouldn’t put you off remortgaging if you’re coming to the end of your existing mortgage deal. If you don’t remortgage at this point, then you’ll usually automatically roll over onto your lender’s standard variable rate (SVR). Homeowners who stay on the SVR often pay hundreds of pounds a year more than those on lower cost fixed or variable deals, although the gap between SVRs and other mortgage rates has narrowed considerably in recent months.
For example, someone with a £150,000 repayment mortgage with 15 years left to run who is borrowing 60% of their property value would be paying £1,441 a month if they were on the typical SVR of 8.09%. Their monthly payments would fall to £1,253 a month if they remortgaged to a best buy two-year fixed mortgage rate of 5.84% – a saving of £188 a month or £2,256 a year.
However, falling house prices may have an impact on which remortgage deals you’re eligible for.
Teddy Cenaj, mortgages expert at Habito, said: “Property prices falling may potentially put you in a higher loan-to-value bracket, aka from 85% to 90% which means that you would potentially end up having to go for a higher rate.
“In general though due the property price increases we have seen over the last few years and the boom we saw during the pandemic, most people should still be in a healthy position to remortgage their property. As always, it’s worth speaking to a broker as they can explain everything in detail and tailor their advice to your personal circumstances.”
It is usually possible to secure your next mortgage deal up to three or sometimes six months before it actually begins, so that you can roll from one deal straight to the next without having to move onto your lender’s SVR in between.
The remortgage process typically takes around six to eight weeks, but can take longer for non-standard cases, so it’s well worth getting started sooner rather than later if your mortgage deal is due to finish soon. Alternatively, if you know when your current deal finishes, set up a free reminder and we’ll let you know when it’s time to search for a better deal.
In some exceptional cases, if you’re stuck on a particularly high mortgage rate, it may still be worth remortgaging before your current deal ends, even if there are early repayment charges to pay. It’s worth getting a fee-free broker to crunch the numbers on your behalf to see whether it makes financial sense to move to a new deal if early repayment charges still apply.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
Finally…
If you’re panicking about house prices falling, it’s important to remember that recent years have seen some of the biggest house price increases the market has ever witnessed, with property prices still well above pre-pandemic levels.
Ms Kinnaird said: “We do expect further downward pressure on property prices through to the end of this year and into next, in line with previous forecasts. While any drop won’t be welcomed by current homeowners, it’s important to remember that prices remain some £40,000 (+17%) above pre-pandemic levels.
“It may also come as some relief to those looking to get onto the property ladder. Income growth has remained strong over recent months, which has seen the house price to income ratio for first-time buyers fall from a peak of 5.8 in June last year to now 5.1. This is the most affordable level since June 2020, and will be partially offsetting the impact of higher mortgage costs.”
Falling house prices are only a real problem if you absolutely have to move home, and you owe more on your mortgage than your property is worth, known as negative equity. Find out more about this in our guide What is negative equity and what can you do about it?
If inflation continues to ease in coming months, and interest rates can be dropped then house prices shouldn’t be in decline for too long, especially as there is much greater demand than supply for homes.
However, no-one knows for certain what will happen in the future, so if you are worried about house prices falling further, you might want to reduce your mortgage balance by making overpayments if you can afford to.
Check first that your mortgage provider will allow you to do this, and if so, how much they will allow you to overpay without incurring early repayment charges. As a general rule, most lenders will allow you to repay 10% of your mortgage balance each year without penalty. Find out more about making mortgage overpayments in our article Should I consider overpaying my mortgage?
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