“The biggest driver is confidence”: exploring what’s next for the property market

In the savings and mortgages space, there is never a dull day. As one of the biggest mortgage providers in the UK, the bank has a full range of innovative products available to make sure our services are delivered to those who need them –? alongside any external circumstances that are impacting the market. That means we’re constantly reviewing and navigating changes in the property landscape to ensure we’re doing the best for our customers.

In recent years, we have seen plenty of events that have had repercussions on consumers. The COVID-19 pandemic and other world events caused shocks including in the property market – with inflation sharply rising and consumers’ confidence falling. Coupled with a global energy crisis, this led to interest rates increasing to try and curb these inflationary increases.

All this has left the housing market stuck. The demand for mortgages fell when interest rates went up, leaving many people feeling like they couldn’t afford it.

People such as “empty nesters” – parents whose children have flown the nest – are being held at the top of the market, waiting to make their next move.?

Rental prices on the rise

One major knock-on effect of this has been on the rental sector, as many people who cannot afford to buy are renting properties. Changes in government policy over the last five years for buy-to-let properties mean that a lot of the landlords are selling out of the market. As a result, the stock of rented properties is decreasing and, with shorter supply, rental prices are dramatically rising.

I think this is a long-term problem, both in the rental and in the home ownership sectors – and this trend is likely to continue if we see changes in capital gains tax. The hope is that, as interest rates come down, some of those people who are currently struggling with affordability will be able to move into their own homes.?

Breaking down the base rate

With access to over 40% of the nation’s credit and debit card transactions, Barclays has unique insight into consumer purchasing and what they are spending on their mortgages. Our regular Property Insights report pieces together data to give a real and credible view of what is happening in the property market – and examines the key trends impacting consumers.

For example, our report in early August revealed over half of consumers surveyed felt more confident in their household finances as a result of the change in the Bank of England base rate.

It’s important to note that existing mortgage holders – unless they’re on a tracker or a variable rate – will not feel an instant gain because their mortgage rate won’t come down with the base rate change. But we have seen more people taking on shorter-term mortgages for two or three years, in the hopes that rates are going to decrease.

In recent months we’ve also noticed renters and homeowners becoming increasingly interested in news about the UK economy – with nearly one in six saying they have become more engaged to gain a better understanding of the factors impacting their housing costs. It’s encouraging to see consumers staying on top of financial news, so they can be empowered to make the best financial decisions when the time comes.

Building consumer confidence

As we look to the future, we’re seeing estate agents report that a record number of customers are coming back with interest in the property market. This means we can expect that the last quarter of the year will see a lot more market activity compared to the summer months – which are traditionally quieter.?

Many people think that rates are what really determines the mortgage market – but, for me, the biggest driver is confidence. If you're going to make the biggest purchase of your life, you need to be confident that the economy is stable, inflation is under control, and you know what you're going to pay. That stability and confidence will determine how people spend, even for renters.?

Encouragingly, our latest report has found that consumers’ confidence in their household finances is on the rise, following reductions in energy bills and a slowdown in rent and mortgages spending growth. Positively, wage rises should also start to impact the amount of money in people’s pockets, and with inflation under control and the likelihood of another interest rate drop later this year, we’re hoping that fresh confidence coming through in the market will remain for the rest of 2024.