Inflation Returns to See Off 2024

We now find ourselves at the end of yet another tumultuous year and there has been a deluge of data to decipher that may, or may not for that matter, give us a clue as to what will happen over the coming months.

Whilst the end-of-year rate reductions many were expecting did not come to pass, proving yet again that it is always tricky to try to play the market, there is still room for some optimism that 2025 will be a much more stable year now that General Elections and initial budgets are out of the way.

First, however, the thorny issue of inflation is still, well, thorny. Yes, the Consumer Prices Index (CPI) rose by 2.6% in the 12 months to November 2024, up from 2.3% in the 12 months to October, the highest rate in eight months and up the second month in a row, although this was pretty much expected.

Core inflation, which ignores more volatile food and energy costs, rose from 3.3% to 3.5%. Services inflation, which the Bank of England views as a key measure, held steady at 5% in November.

This data put paid to any remote hope of a December Bank Base Rate cut and so it proved to be as the Bank did indeed keep the base rate unchanged at 4.75%. What was interesting, however, was that the Monetary Policy Committee voted by 6-3 to keep rates unchanged, which was much closer than anticipated. Three members now believe we should be continuing to cut rates and as such there is that there is still an expectation of 3 or 4 rate cuts next year.

With the economy itself stagnating, there is growing pressure that interest rates will need to be cut further, although now probably not until February or even into the 2nd quarter of next year.

Mortgage Rates

SWAP rates however are still higher than they were a year ago, but mortgage rates are still at the lower end of the 4% spectrum, (at the time of writing Danske Bank has a 5-year fixed rate at 4.01%), and January 2025 looks set to be no different than other years when lenders will be looking to get out of the blocks fast and start the year well.

Whilst we do therefore expect a selection of “Winter Warmers” to entice borrowers, much depends on the continued rhetoric of the Bank of England and the associated effect on SWAP rates.

With changes in Stamp Duty edging ever closer and mortgage rates again heading toward starting with a 3 once more we may well see another bumper start to a New Year.

However, we have been here before and there is a note of caution that things have a habit of quickly turning due to any number of global, political or economic issues so once again trying to play the market will be fraught with danger.

The good news this year is that we have seen the return of much mortgage lender innovation. From Skipton’s 100% LTV Track Record mortgage, Accords £5k deposit mortgage, the entry of Perenna and April’s long-term fixes, the Own New Rate Reducer scheme in the New Build space, to Nationwide and Halifax’s income boost products, changes from Barclays who have shown they are listening to brokers like us, and Building Societies like Nottingham, Leeds and Family filling important gaps in the market and showing commitment to their clients, and of course us brokers.

This looks set to continue next year.

House Prices

Meanwhile, the housing market continued to show strength as house prices continued to rise in the 12 months to October, likely fuelled by the cheaper mortgage rates we had over the summer. But now, with inflation rising again and the economy contracting, all bets are off, with the full impact of the Budget yet to be felt. The stamp duty deadline may support demand during the first three months of 2025 but after that, it is hard to call. I still think we will have another year of house price growth in 2025 overall, by about 3%.

Stamp Duty

For all those looking to buy in the current buyers’ market, and yes I do think it is a good time to buy, it is important to remember the stamp duty changes, especially if you are a first-time buyer.

Starting 1st April 2025, several key changes to Stamp Duty Land Tax (SDLT) thresholds will take effect as the temporary increases introduced in September 2022 come to an end:

• The nil-rate threshold, currently £250,000, will revert to its previous level of £125,000.
• For first-time buyers, the nil-rate threshold will drop from £425,000 back to £300,000
• The maximum property price eligible for First-Time Buyers’ Relief, which allows reduced SDLT rates, will decrease from £625,000 to £500,000.

These adjustments will have broad implications for homebuyers, but first-time buyers stand to be the most affected. Under the current rules, a first-time buyer purchasing a property worth £425,000 pays no SDLT. From April 2025, the same buyer would face a £6,250 SDLT bill, significantly increasing the cost of stepping onto the property ladder.

Buy To Let and Rental Market

As for the rental market, well, renting is nothing short of brutal. In London, rents have risen by 11.6% over the past year and you have to feel for the UK’s tenants as rents are rising at an astronomical rate. In many cases, however, landlords have no choice but to increase rents as they are in an impossible position due to higher mortgage rates and an ever more punitive tax regime.

What has been interesting to see, however, is the way that professional landlords have been carving their way through the changes with many even taking the latest increase in Stamp Duty for additional properties in their stride. Whilst there is much debate to be had over the Renters Reform Bill, talking to those lenders who have conducted much research on their landlords, there is every chance that the rental market will remain a place of opportunity for canny landlords, though undoubtedly more professional than amateur landlords.

It is high time, however, that the Government recognised the importance of the Private Rental Sector, and we can only hope their 10-year plan for housing in the UK works to relieve pressure and ensure that there is a good supply of owner-occupied, private rental and social housing in the future.

Summary

Whether you’re celebrating Christmas, Hanukkah, Diwali, Winter Solstice, or simply enjoying the cosy embrace of the season, there’s a certain joy in this time of reflection and anticipation for what lies ahead.

My conclusion is that it has been a year that we may look back on as a foundational year, a sturdy block upon which we can build and move forward confidently, the year that things started to change for the better.

So as the boys of the NYPD Choir start singing Galway Bay, may the New Year bring you peace, love and prosperity in every way.