This morning The Mortgage Lender (TML) released its first economic update of 2024, providing brokers with valuable insights into the economic landscape that will shape the mortgage and housing markets in the coming year. The report itself outlines key factors affecting GDP growth, inflation, interest rates, the housing market, rental market, and the mortgage market. Let’s delve into the highlights.
GDP Growth and Economic Outlook
Real incomes have received a boost from cuts in National Insurance rates for high-income earners and a 10% rise in the minimum wage at the lower end of the spectrum. Despite a lacklustre outlook, GDP is expected to grow by 0.4% in 2024. The report notes that by the time of a potential general election, anticipated in the second half of the year, the government may highlight falling interest rates and a return to a 2% inflation rate.
Inflation and Interest Rates
The report highlights a positive trend in inflation, which dropped below 4% in November, although it was reported at 4% again in December last year (as announced this morning too). Lower transport costs and flat services prices contributed to this decline. Market expectations suggest a 40% probability of an interest rate cut in March, with the first move anticipated in May. While the Bank of England initially projected a need for “restrictive” policy, markets are now pricing in a potential cut in Bank Rates to 4% by the end of 2024.
The housing market appears more favourable to buyers, with the reassessment of interest rate projections. Supply of new properties is stable, and demand seems to be supporting prices. The report cautiously assumes a 5% drop in house prices over 2024, but improved affordability and stabilizing prices may yield better outcomes. Potential forced selling by Buy-to-Let landlords remains a risk. High loan-to-income lending and longer mortgage terms contribute to the improved affordability but raise concerns about sustainability.
Affordability is identified as the main challenge for the rental market in 2024. While income growth is expected to support the sector, limited scope for large rent rises is noted. High rates have led to a shift in Interest Coverage Ratios (ICR) on new Buy-to-Let lending. Economic challenges, including ICR requirements, might drive a shift toward the use of Limited companies. The report suggests potential changes in housing policy under a Labour government.
Despite a contraction in net lending in November, the report anticipates an improvement in approvals in 2024 due to lower mortgage rates. Affordability is returning to normal levels, with five-year fixes below 4% and two-year fixes around 4.5%. The Buy-to-Let market shows limited appetite, but remortgage activity is thriving. Expectations of the Bank Rate in five years have dropped, influencing mortgage rates to approach 4%. The report suggests that markets might have pre-emptively priced in rate cuts, but the neutral policy rate is viewed around 2.5%.
Speak to a Mortgage Advisor in 2024
In summary, The Mortgage Lender’s economic update for 2024 reflects a cautiously optimistic outlook, balancing positive trends in real incomes, inflation, and interest rates with lingering concerns about the sustainability of certain market conditions. As the year unfolds, our brokers are vigilant with mortgages on offer and are keeping up to date with all new market trends, so that we can offer the most knowledgeable service possible. If you are thinking of getting a new mortgage this year, then please feel free to give our team a call today. We are here to help.