Google searches for “should I buy a house” have hit a 12-month high in the UK after Thursday’s news that the country had entered a recession at the end of 2023.
This is according to an analysis from financial experts at Wealth of Geeks, who saw searches for “should I buy a house” almost triple (285%). T
hey caution strongly against doomsday thinking as the current recession is likely short-lived and mild, while actually increasing the chances of a rate cut.
With inflation proving steadier than expected the day before, investors are now more confident that the Bank of England (BoE) will cut rates as early as this summer, meaning good news for house owners with a variable-rate mortgage and house hunters.
Experts encourage the latter not to be dismayed by today’s recession news and start weighing their housing options more confidently and prepare to act when the time is right.
Although the BoE recently announced that it would maintain the current interest rates at 5.25%, there are now more signs of optimism that rate cuts are starting to be seriously considered. Financial experts at Wealth of Geeks believe this might happen as early as the summer months, with more chances now for a 0.75% cut by the end of 2023 and more optimistic predictions leaning towards rates reaching as low as 3% by the end of next year. They believe this will reanimate the housing market as borrowing is becoming more affordable.
“Central banks usually cut rates during a recession and UK investors have already signalled they feel more confident now that this will happen,” says Michael Dinich, personal finance expert at Wealth of Geeks.
“At the very minimum, borrowing is unlikely to become more expensive in the near future than it has been over the past two gruelling years. At best, we might finally hear some good news and get lower mortgage rates overall as early as June. This means house hunters can start budgeting based on today’s rates, as the worst of the latest wave of bad news is over now. Now is a good time to start planning and be prepared to possibly implement between now and this summer.”
House prices have dropped 2.1% year-on-year, according to provisional estimates from the UK’s Office for National Statistics. Before BoE signalled more optimistic prospects of a base rate cut in the February 1st meeting of the Monetary Policy Committee (MPC), experts believed house prices might continue to fall throughout 2024.
However, this may have changed as previous factors for a house price slowdown included rising mortgage rates and a subsequent considerable disposable income squeeze, further affected by spiralling energy bills. With these factors on track to ease this year and no external shocks in sight, house prices may start to pick back up again.
Dinich continues: “Ultimately, if you have your finances sorted, a secure job and you find the right house for you, now might actually be a good time for you to act. Bear in mind that banks have just started offering more competitive fixed-rate mortgage products, which might not actually be ideal if the base rate is going to fall to levels that make variable-rate mortgages cheaper.
“Your major indicator to consider acting on your house-buying plans is when the Bank of England does decide to lower the rates, which may happen as soon as June. So it is wise to have a solid plan ready for when that day comes. A financial advisor or broker will be able to tell you exactly when the right time for you is, based on your personal circumstances.”
The BoE has steadily been raising interest rates for two years, with members of the MPC voting to either raise or pause them. Over the past four meetings of the MPC, the BoE decided to hold the interest rate at the same level. That being said, in the latest MPC meeting on February 1st, one member broke ranks, advising to cut rates for once. BoE governor Andrew Bailey suggested rate cuts would depend on a clearer stabilisation of the inflation rate, which the Bank expected to dip in the spring but rise again afterwards.
The February 14th news that inflation held steady at 4%, despite predictions it would increase, was “encouraging”, according to Bailey, but that it still “pretty much leaves us where we were”.
The following day, the Office for National Statistics announced that the UK’s GDP in the last quarter of 2023 fell by 0.3%. Considering the economy had contracted by 0.1% in the quarter before this, these two consecutive quarters meant that the UK was technically in a recession at the end of 2023.
The next MPC meeting where rate policies are revised will take place on March 21st.
Leave a Comment