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The housing market and the mortgage industry go hand-in-hand, so it should come as no surprise to hear that property prices can have a major impact on your mortgage application.
Here we will explore where house prices are at right now, who benefits from rising and falling property values, and what the latest data means for your mortgage options.
What are the latest UK house prices?
Many different sets of data are used to measure house prices, but among the most reliable are the official figures released by Land Registry, which we have used to base this blog post on.
According to their latest data, house prices in the United Kingdom rose by 2.2% year-on-year in July 2024. This means that the average cost of a property is now £289,723, 0.6% higher than it was in June.
Land Registry's data tends to lag behind the house price figures released by leading banks and building societies, but is considered more accurate. Halifax's latest house price index, released in August, does, however, support reports of an upward trend, confirming that property values have hit their highest level in two years.
Who benefits when house prices rise?
If you are a homemover, house prices being high won’t necessarily impact your plans. Although you will likely be paying more for your property than before prices rose, you should also make more on the property you’re selling, so it should all balance out.
The people who really stand to gain from a rise in property prices are existing homeowners. The increased value of their homes becomes equity, which will improve their loan-to-value ratio when the time comes to remortgage, opening them up to better deals.
This income can also be unlocked to become disposable capital, either at the point of remortgage, or in later life via equity release, after the mortgage has been settled.
Who stands to gain when they decline?
The only demographic who stands to gain anything when house prices dip is first-time buyers. This is because deposit requirements and mortgage affordability criteria are easier for them to meet in a declining market.
To get approved for a residential mortgage under most circumstances, you will need at least 5% of the property’s purchase price to put down as a deposit. That will obviously be 5% of a lower sum in a market where house values have declined, compared to a surging one.
In terms of affordability, mortgage applicants can typically borrow up to a maximum of 4.5 times your annual salary, which will go further when property prices are lower.
Affordability and deposit requirements are two of the biggest hurdles first-time buyers face on their way to homeownership, and a market slump makes them more surmountable.
Are better mortgage deals available when the market is strong?
This is usually the case, but it is an oversimplification to say that rising house prices mean better mortgage deals on the market. Although lending is riskier in a volatile market, mortgage providers take a wide range of factors into account when determining their rates.
Housing trends are one variable they factor in, but equally important in shaping the demand for mortgages is the Bank of England’s base rate and the level of economic growth in the UK. Within the latter factor are other variables such as employment and GDP levels.
So, in summary, there tends to be better mortgage rates available when the housing market is healthy, but this is merely one of many factors they take on board when setting their rates.
