Mortgage rates will settle to around 4.5% and become the new normal, Keith Church, economist and head of economic modelling at 4most, said.
Presenting at a conference held by The Mortgage Lender (TML) in London this week, Church said average rates on mortgage advances had been around 4.8% due to the rate increases seen more than a year ago, but that would start to fall as more recent rate reductions fed through.
He said the average rate of outstanding mortgages was around 3% and this would rise as people remortgaged onto new deals with higher rates of approximately 4%.
Church added: “What’s the new normal? I think it’s probably around 4% to 4.5%.”
Affordability challenges
Church said there may still be challenges in the housing market, adding: “Housing affordability has been a constraint on activity and the Budget – slightly at the margin – has been a bit of a setback to that because interest rates are expected to stay high.”
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He said for a period, higher wages and lower interest rates were “doing the job” for the housing market, which resulted in more sales. He added that while wage growth would continue to be strong, “we can’t count on the interest rate part of that as much as we did”.
Church said there was still a question of whether house prices would decline, adding this “wouldn’t be a bad thing for anybody if house prices are going down because it means more people will be priced into the market”.
He added that the affordability challenge had never been properly resolved, saying: “With interest rates still high, is this the new normal? Are people just going to spend more of their income on housing?”
Church said banks would not like to hear that house prices would fall, but he said this could be good for first-time buyers as it would improve their chances of getting onto the property ladder.
