Mortgage market predictions: What’s to come in 2024?

24 January 2024


Richard Harrison
Richard Harrison
Rooftops of houses

In this blog post, our Head of Mortgages Richard Harrison takes a look at some potential predictions for the mortgage market in the year ahead.

With 2023 in the rearview mirror, the mortgage industry is now well and truly fixed on what’s to come over the next twelve months.

But what can we expect after another year of turbulence in the market? Below, I’ve made a few predictions as to what we can expect in some of the key areas of the mortgage market. Read on to find out what they are.

House prices will remain largely unchanged

Let’s start with house prices. Generally speaking, I think we’re going to see a best case scenario where headline house prices largely remain unchanged.

Demand from buyers has been impacted by recent increases in mortgage rates from lenders. The Propertymark report for November 2023 found the average number of new prospective buyers registered per estate agent branch falling to 49 from 53 in October 2023. This continues a decline seen across the whole calendar year.

However, any fall in house prices is likely to be offset by the fact that there is a housing shortage that will continue through 2024 and likely won’t be meaningfully addressed anytime soon. This is likely to act as a counterbalance for any downward trend in price.

There will be a north-south new build divide

I’ve just mentioned that there is a growing housing shortage in the UK, and I think this will manifest itself in a north-south divide.

House builders are now finding it increasingly costly to develop homes, thanks to the increasing price of materials and labour. With their profits under pressure, they are being forced to be more strategic, and therefore selective, as to where they’re going to focus on their developments in the short-term.

We’re now starting to see signs that this status quo is resulting in housebuilders giving higher priority to new build developments located in Southern England. By doing so, they are able to charge more of a premium for these properties compared to the North.

This is unfolding at a time where the overall number of new build projects being taken on is already declining. Given the economic circumstances, this could potentially result in the lower number of homes that are built being delivered at prices that are out of reach for the majority of first time buyers.

This is a trend that deserves attention. The UK is most definitely in the need of more homes being built, but it’s also crucial that these homes are both affordable for buyers and available in more than just one region of the country.

Base rate cuts will mean lower mortgage rates

In 2023, the mortgage market felt the impact of repeated base rate increases by the Bank of England (BoE), with the result being higher rates for borrowers.

However, the base rate increases that we’ve become so accustomed to appear to be at an end. Inflation dropped to 4.6% in October, which suggests that prior hikes have now had their desired effect. Questions are now turning to when the BoE will begin to cut rates. Andrew Bailey, the Governor, has said it’s still too early to consider cuts, but the reality is that rate expectation will impact mortgage pricing.

We’ve already seen that rates have started to drop in recent weeks, with many lenders feeling that they’re comfortable with offering fixed rates below 5%. Unless something unexpected happens, we can expect this pattern to continue through the year. This means there should be more competitive rates available across the board.

Lenders who look beyond credit scores will be crucial

While rates are certainly set to have a starring role in 2024, there’s also likely to be an important role to play for lenders who look beyond credit scores.

Thanks to the cost of living crisis, there’s been massive pressure on household budgets. This is forcing more people into financial difficulties, where 44% of households have had to take out new borrowing in the last six months of 2023 (UoB).

When it comes to mortgages, many lenders will categorise someone with financial difficulties that have impacted their credit score as near prime or subprime, as opposed to prime. For lenders who rely on using credit score to assess a mortgage application, this can result in a decline decision for the applicant.

Now, with a greater number of people experiencing financial difficulties, lenders who rely on using credit scores will be more likely to turn down mortgage applications. This may prove to be problematic for many people in 2024.

Thankfully, not all lenders operate in this way. For example, here at Atom bank, we take a more holistic approach to assessing our mortgage applicants. We look beyond a credit score to ensure we get a much more complete picture of whether someone is likely to be able to afford a mortgage loan. We even have a specialist Near Prime product to help those with less-than-perfect credit secure a deal.

Lenders who assess their cases using this method will probably fulfil an increasingly crucial role for many hopeful mortgage applicants in 2024 and beyond.

Speedy service will be even more important

One factor I’m certain will become even more important in 2024 is speed of service to borrowers. When someone applies for a mortgage, they should receive a swift response from the lender as standard. However, this is all too often not the case.

A quick turnaround can go a long way to easing stress for the borrower. Having a longer wait period can be worrying, especially when there are questions left unanswered like: “what if it’s a no?” or “what are the other options?”. It also has a practical advantage in that it allows the borrower to act quickly to secure a good rate or deal.

By ensuring that the borrower has an answer as quickly as possible, stress levels are reduced, the next steps can be planned efficiently and a great deal can be locked in.

And, given the financial pressures on so many households, getting a swift reply from a lender is likely to be even more sought after than before. This makes it imperative that banks and building societies are able to adapt and deliver the level of service that borrowers need in 2024.