How Could The Latest House Price Rises Affect Mortgages?

According to the latest House Price Index (HPI) reports released this week from Halifax and Nationwide (for November 2024), house prices are beginning to show signs of a surge. 

The Halifax HPI recorded a 1.3%* monthly increase from October to November, bringing the average property price in the UK to a record high of £298,083. This marks the fifth consecutive month of rising house prices and a 4.8% year-on-year increase (the highest since November 2022). Similarly, the Nationwide HPI recorded a 3.7%* annual rise, indicating an average house price increase to £268,144, based on this report. 

The latest information from the official UK House Price Index, compiled by the Land Registry, suggests a similar story. As of September 2024, the average house price stood at £291, 828. 

*Sources: Halifax / Nationwide / Land Registry

So, what does all of this mean for existing mortgage holders and someone looking to buy in the near future? Are mortgages still possible for first-time buyers?

Are homes becoming too expensive for first-time buyers?

Not quite, but rising house prices undoubtedly cause affordability issues for first-time buyers. Despite a slight reduction in mortgage rates following the Bank of England’s recent base rate cuts, first-time buyers still face the challenge of increasing deposit requirements and stricter affordability assessments for higher mortgage loans. 

The house price trends reported by the latest Index data indicate that buying a house in 2024 is around £11,000 more expensive than a year ago*. This increase has to be paid by increasing your deposit or accepting higher mortgage repayments. Both these options place additional strain on the finances of first-time buyers. 

*Source: Land Registry

For example, the average deposit for a first-time buyer is now approximately 20%. Based on average house prices, that means a deposit of nearly £60,000 is required. Such steep entry costs could delay homeownership for the younger generation and serve to drive up demand for rental properties (and premiums). 

Is help available for home movers and first-time buyers?

Yes, thankfully, there are quite a few schemes currently available designed to assist both first-time buyers and home movers, including: 

• Deposit Unlock. Allows someone the opportunity to buy a brand new home with just a 5% deposit and use a 95% loan-to-value (LTV) mortgage for the remainder. This scheme is backed by a mortgage indemnity, paid for by developers, to encourage more lenders to offer higher LTV lending on new properties. 

• Shared Ownership. Also known as ‘part rent, part buy’, shared ownership allows you to buy part of a new property - usually between 25% to 75% - and then pay rent to a housing association on the remainder. The deposit you pay is based on the amount you buy, not the total property value. 

• Mortgage Guarantee Scheme. Similar to Deposit Unlock, but backed by the government, it also offers someone with a low deposit (minimum 5%) the chance to get onto the property ladder. Unlike Deposit Unlock, you can consider buying either new or pre-existing properties. 

• First Homes Scheme. Available in England only and designed to help first-time buyers and key workers buy properties in their local area at a discount of 30% to 50% of the original value. 

What about existing mortgage holders?

With inflation now coming more under control - currently standing at 2.3%* from a high of 11.1%* two years ago - there is hope that the Bank Of England will have the scope to consider a cycle of base rate reductions during 2025. This will help existing mortgage holders who have had to contend with a sustained period of rate rises over the last few years. 

*Source: Office for National Statistics

This would impact anyone with a variable-rate mortgage, such as a tracker mortgage, rather than someone with a fixed-rate mortgage. However, if your current deal ends in the next 6-12 months, now is the time to start doing your homework on interest rates to know what is available before you remortgage.