Buyers urged to follow mortgage rates instead of house prices

Tracking mortgage rates may be more fruitful for buyers than following house price data, a property expert claims.

Tom Bill, head of UK residential research for Knight Frank, has said taking the right mortgage at the right time could prove more fruitful than waiting for prices to bottom out.

He highlights that a five-year fixed-rate mortgage is currently priced at around 4.5% compared to more than 6% in October, adding: “Rates will continue to drift downwards as the effects of the mini-Budget work their way through the system, though we are unlikely to see a five-year rate starting with a ‘3’ any time soon.

“That said, buyers can agree an improved mortgage offer any time before the completion date, provided they allow a fortnight or more for the paperwork.”

Writing in a blog on the Knight Frank website, Bill includes commentary from Ben Sherriff, head of London at Knight Frank Finance, who said the lowest rate isn’t always the best and it is worth keeping a broker on side as  they will know whether the terms and conditions are suitable for a particular buyer and which banks can move quickly.

Bill added: “Timing your mortgage offer correctly may be more rewarding than attempting to call the bottom for prices.

“Anyone trying to predict the trajectory for house prices in 2023 should start by ignoring any data from 2022.

“Last week, we learned there was a sharp drop in mortgage approvals in November. Data from Halifax showed that monthly price declines following the mini-Budget had narrowed but an annual drop in house prices is imminent.

“However, the fact many buyers and sellers pressed the Christmas pause button early last year due to the mini-Budget doesn’t tell us much about what will happen this year.”

He predicted that price declines will become more widespread and sales volumes will come under pressure later this year as more buyers recalculate their financial position, but said the downwards trajectory will be “gentler than anything seen in the chaotic final quarter of 2022.”

Bill added: “For context, it should also be remembered that more homes were owned outright in England and Wales in 2021 than with a mortgage, according to census data released last week. 

It means downsizers and cash buyers will be in a stronger position this year.”

Bill said the readjustment to the new rate environment will continue into 2024 as more people come off fixed-rate deals.

He said: “We expect price declines to last into next year, which means picking your moment this year is not straightforward. That said, an overall 10% decline would mean prices only revert to where they were in summer 2021.

“Irrespective of what may happen to prices, many will need to move for personal and professional reasons and the scope for altering the timing of their purchase will be limited.

“Which is another reason to stay close to your broker in 2023.”