The mayhem that has dogged the mortgage market since the disastrous Truss-Kwarteng mini budget is continuing this year, but this time repayment rates are tumbling.
After 15 consecutive base rate hikes and two holds, it is looking increasingly likely that the Bank of England will make its first cut within the next six months.
After three leading economic consultancies issued a surprise update suggesting that inflation will halve to two per cent by April, the financial markets have predicted as many as five 0.25 per cent adjustments downwards by the end of the year.
This has triggered a flurry of new and more attractive mortgage deals on offer this January under the four per cent threshold, and could point to a mini house price recovery this spring.
In the light of this turnaround, Knight Frank has republished its house price forecast for London this morning.
In 2023 the leading estate agent predicted that the average house price across London would fall by four per cent this year – but its analysts now foresee a reversal, with values climbing two per cent by December.
"This is a material shift from October when the financial markets were predicting a 0.25 per cent cut to the base rate at the end of the year and after the General Election [loosely scheduled for the autumn]," Tom Bill, head of residential research at Knight Frank, told Homes & Property.
"As a result we are now expecting a decent spring selling season," he added.
Interest rates finally settled in the summer of 2023 at 5.25 per cent, the highest level since the financial crisis in 2008, and four times as high as they were at the start of the pandemic.
With lenders anticipating the first cuts far sooner than expected a price war has erupted among the mortgage lenders and, in the bid to win customers repayments rates, have now dipped below four per cent.
Barclays and Santander were the latest to cut the cost of fixed-rate deals this week by up to 0.82 per cent.
But house price growth in London is expected to be slower than the rest of the UK, due to eye-wateringly high property values in the capital and high rents which prohibit some tenants from saving for a deposit.
Knight Frank forecasts show a three per cent rise in the average house price across the country, one per cent higher than that in London.
Across the next five years the national price tag is forecast to jump by 20.5 per cent, compared to 15.9 per cent in the capital.
"We have forecast slightly lower growth for the mainstream London market this year as continued affordability constraints in the capital mean lower value areas of the country are more likely to outperform," said Mr Bill.
Asking prices in London sit at a whopping £664,550 according to Rightmove figures released this morning.
The General Election, however, could slow momentum in the housing market both in and out of London, he continued, and points to wider global instability and its negative impact on buyer confidence and the economy.
"There is a risk that Rishi Sunak cannot fully control the timing [of the election] if the ideological splits within his own party on the issue of immigration grow wider, which adds an element of uncertainty.
Speculation over the stability of government is not good for sentiment in the housing market, as we saw in 2019 under the former Prime Minister Teresa May.
"The ongoing conflict in the Red Sea and the threat it potentially poses for higher inflation in the UK is another risk on the horizon," he explained, referring to different rebel confrontations in the region which could be seen as an extension of the Israeli-Palestinian crisis.
