Two polls put into perspective new positives in the housing market. Broadbench tells contractors how to take advantage.
Not one but two polls have now confirmed that contractors and other homeowners are sitting on a mortgage affordability boost.
And just at the right time — ahead of Autumn Budget 2024 in three weeks’ time, where everything could be upended.
But for now, this welcome news on contractor mortgage affordability coincides, a little paradoxically, with house prices increasing.
Mortgage affordability easing, just as house prices are (modestly) surging
Before I get into why these two unusual bedfellows are co-existing right now (mortgage affordability easing at the same time as house prices notching up), the upshot is that contractors would be wise to look at remortgaging or restricting their home loans.
That’s assuming you’re a contractor who wants to make the most of these quite suddenly favourable conditions on mortgages and mortgage affordability, writes Tom Hitchcock, owner of Broadbench.
Reuters: UK house prices to rise faster than inflation
The first poll to signal steady growth for the UK housing market at the same time as mortgage affordability improving — specifically for first-time buyers, came from Reuters.
Its poll of 21 housing market experts predicts that property prices will rise faster than inflation.
But despite being forecast for the coming two years, house prices surging is projected to go hand-in-hand with mortgage affordability easing.
What’s driving improved mortgage affordability?
That ease in mortgage affordability is being driven by lower borrowing costs and rising wages.
For contractors and freelancers, this evolving mortgage landscape presents both challenges and opportunities. I will demystify why such independent workers must be alert to both, but let’s first take a closer look at the Reuters poll.
Predicted increases in UK house prices
Run from August 19th to September 3rd 2024, the Reuters poll predicts UK house prices will rise by:
- 2.5% in 2024,
- 3.0% in 2025, and;
- 4.0% in 2026.
These house price increases gains will surpass the expected inflation rates of 2.3% in 2025, and 2.0% in 2026.
So, the indication from the Reuters poll is that housing will continue to outpace the broader economy, in terms of value growth.
This increase in the total sum of money it takes to purchase a house may seem daunting for potential buyers. And that relates to those challenges which I mentioned for contractors because, more so than any other workers, they have irregular income streams.
But the overall outlook for mortgage affordability isn’t as grim as a housing market with steeper prices might lead you to think!
Falling interest rates (finally)
One key factor in improving mortgage affordability is the anticipated fall in interest rates.
From no less than a 16-year high, interest rates fell in August 2024 for the first time since March 2020, from 5.25% to 5.00%.
Although they were frozen more recently — in September 2024, the Bank of England is now anticipated to lower borrowing costs gradually.
UK interest rate predictions
The projections are that the base rate will drop from its current 5.00% to around 3.75% by the end of 2025.
Lower interest rates will result in more manageable mortgage rates, offering relief to contractors (and other home-owners) currently facing high repayment costs.
As Mike Scott, an analyst at estate agency Yopa puts it: “There is likely to be a modest surge in [house] prices next year, as interest rates fall back.”
How a specialist broker for mortgages can help right about now
So, as I recommended at the top, if you’re a contractor, now is an opportune moment to secure more favourable rates or at least talk over the market’s offerings with a specialist broker for mortgages.
Merely a conversation about remortgaging, or restructuring a home loan, could turn up an opportunity, in the shape of some surprisingly welcome figures.
To reassure any disbelieving contractors, 15 out of 17 housing market analysts quizzed by Reuters said mortgage affordability is set to improve.
Key to house prices rising increasing in the same breath as mortgage affordability eases, are falling mortgage rates from lenders, banks and building societies, plus wage growth.
Income predictions: how much more can you expect to earn?
The Reuters poll forecasts incomes to increase by 4.8% in 2024 and 3.2% in 2025.
With wages growing faster than inflation and interest rates declining, the financial strain of purchasing a home should (theoretically) lessen.
We’re cautious, but we’d say this looks like especially welcome news for contractors and freelancers, who face unique challenges due to their irregular income.
What contractors should expect from a ‘good’ mortgage broker…
A good mortgage broker won’t be surprised by contractors reporting income fluctuations, however.
With some thoughtful planning and an effective mortgage strategy, led by such a broker, contractors should find it easier to navigate this housing market with a spring in its step, even if we are on the cusp of autumn!
And it’s not just us and Reuters signalling that conditions might be worth acting on if mortgage affordability matters to you.
Rising income and cooling rates are making home loans more affordable – Halifax
On October 7th 2024, the Halifax said UK house prices climbed for the third month in a row in September, making the average property now worth £293,399. That’s about £100 shy of June 2022’s record high.
The UK’s largest mortgage lender said falling interest rates — sparked by the BoE’s cut and in turn, lenders jockeying for position — has “helped boost confidence among potential buyers.”
“Mortgage affordability has been easing thanks to strong wage growth and falling interest rates,” says Halifax head of mortgages Amanda Bryden.
‘Improved mortgage affordability should continue to support buyer activity’
Halifax added that improved mortgage affordability should continue to support buyer activity in the months to come, especially with the anticipation of further interest rate cuts.
However, the lender cautioned that housing costs will “remain a challenge for many” — and if that challenge is something you face as a contractor, I reiterate my recommendation to check-in with your broker about changing up your mortgage.
“It’s essential to view these recent gains in context,” Bryden cautioned on Monday.
“While the typical property value has risen by around £13,000 over the past year, this increase is largely a recovery of the ground lost over the previous 12 months. Looking back two years, prices have increased by just +0.4% (£1,202).”
Over to our PM, and very soon it’s over to the chancellor…
Contractors won’t need an elephant-esque memory to remember that prime minister Keir Starmer said after Labour took office that:
“This shouldn’t be a country where people have to pay thousands more on their mortgage.”
The government has also promised to boost affordable housing supply by building 1.5 million homes during this parliamentary term.
For contractors, Starmer’s political promises (and sentiments) will be hard not to support. Boding well for his political record, the housing market already looks on its way to helping him keep his promises, what with mortgage affordability going in a direction that puts those ‘extra thousands’ our PM is worried about on the defensive.
Finally as a contractor with a mortgage, focus on what you can control
But my advice to contractors? Focus on what you can control.
And with falling rates and positive wage growth, right now is a very good time to take proactive steps to reassess your mortgage or property goals.
But don’t go it alone. Reassess with a specialist broker who will have an up-to-the-minute view of the best mortgage deals available in this markedly more positive housing landscape. Staying well-informed with a mortgage expert on hand will be essential to making the most of upcoming opportunities; that goes too for the chancellor’s statement in just 21 days’ time.
You can find out more and get mortgage quotes here.
