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Martin Lewis: Are house prices, rents, interest and mortgage rates about to rise or fall? What happens next...

Are you buying a home, remortgaging or renting, and trying to plan your next steps? MoneySavingExpert.com founder Martin Lewis explained what could change over the next year in the latest episode of ITV's The Martin Lewis Money Show Live.

There's a video clip and transcript below. To compare the best mortgage deals, see our Cheap mortgage finding guide, Mortgage Best Buys and Mortgage Calculator. For info on your renting rights, see our Tips for renters, as well as our Rent increase rights guide.

ITV's The Martin Lewis Money Show Live – Tuesday 23 January

Martin Lewis considers whether house prices, mortgage rates and rent costs are about to rise or fall.
Embedded YouTube Video

From The Martin Lewis Money Show Live on Tuesday 23 January, courtesy of ITV. All rights reserved. Watch the full episode on ITVX.

Transcript of what Martin Lewis said on the show…

Below is a direct transcript of what Martin said, though we've split it into sections for ease.

House prices have stagnated for over a year, while rents have continued to rise

Martin Lewis: "Look, here is average UK house prices from the Nationwide source.

"You'll see they were rising. They were rising, they were rising, and then towards the end of 2022, they started to fall and they've stagnated a bit since. So we're down just about 5% from the peak of house prices.

"Now, if I then bring rental prices on – and we'll be talking about rents later – you can see we have had a continued rise in rents, up 15% from March 2021 and currently showing no signs of abating, [and this has] put a lot of pressure on people, especially some with the lowest incomes."

House prices are predicted to come down over the next year – but this is just an estimate

"So that is what has happened with house prices and with rental prices. Of course, what really matters is what's going to happen next. So let's squeeze that up. And you're about to see something that's never happened on The Martin Lewis Money Show before.

"Over there is Robert, the chief economist of the Nationwide. You do this for a living. Robert, I'm going to allow you near my big screen. Come up here. [Robert walks on to the stage.] Feels a bit intimate, an invasion of privacy, but we'll carry on with it. There we go.

"So what I'd like you to do, Robert, this is what you do. The blue line is house prices. Can you tell me where you think that blue line is going to go in future? If you want to go and do it on there."

Robert Gardner, chief economist of Nationwide: "Sure. So I think over the next 12 months, maybe down 1% to 2%."

Martin: "Yeah."

Robert: "Then the year after, up around 1% and the year after that, maybe 2% to 3%. So pretty flat overall. But that's the picture."

Martin: "So down a little bit and then up a little bit. Now, look, there's an old rule, you're an economist: you put two economists in a room, you get three opinions. Right? So if I were to ask other economists, what's the range of views on house prices at the moment?"

Robert: "Probably most thinking down a little more, but there are some that think higher than I've got as well, so."

Martin: "So you're probably a little bit above the average of what people are thinking."

Robert: "Yeah, I reckon."

Martin: "So some think it may go down a little bit further. I know you can't do rents because it really – the house prices feed into it and it's competitive markets. Thank you, but get off my stage. [Robert leaves the stage.]

"I thought that was really worth doing just so that, you know, you understand where we're going – probably coming down, and this goes to your question. House prices coming down a little bit, but not too much. If he's right – and he doesn't know – it's the best, best estimate you can possibly give. And then going up afterwards."

Variable-rate mortgages have stagnated, while fixed rates are currently falling

Jeanette Kwakye (Martin's co-host) said: "And just on that, we've got a quick one here for you, Martin, from Lois. And she's saying: 'I'm ready to buy, but are the mortgage rates likely to fall in the first quarter of this year?'"

Martin: "Well, let me go straight into that, that's where I'm going next on here. So we'll talk about interest rates and mortgage rates. The first thing to understand is that the main UK base rate, set by the Bank of England, I mean it was at anomalously low levels for over a decade, at historically, ridiculously low levels. It's gone up and up and up and then it's been steady for the last six months at 5.25%, which is where we are right now.

"Now, the real answer to your question depends on which mortgage rates you're asking about. Variable-rate mortgages – certainly tracker rates – they tend to follow very closely the UK base rate. There you'll see the cheapest two-year tracker, you'll see the pattern is pretty similar, isn't it? So what happens to the base rate is what happens to variable-rate mortgages."

"There is another type of variable rate. The scarier type, the SVR. This is the standard variable rate. This is the rate that you go on to when your fix or discount deal ends if you haven't got another deal. Frankly, if you look where it is right now, it's really expensive. Cheapest tracker is 5.4%, the average SVR is 8.2%, the highest in the country. Some people are over 9%. A few are on SVRs of around 6%. But that's the average. It's very high.

"Now let's move to fixed-rate mortgages and you'll see a totally different pattern. The yellow is two-year fix, the pink is a five-year fix. Why? Well, fixed-rate mortgages don't move with the UK base rate. They move with the market's interpretation of where they think interest rates are going. I'm slightly oversimplifying, but that's the rough point."

"So what you can see by this pattern is they went up. There you go, that was the October Budget. You know, the one, the one that didn't go very well. And then they went down and then they've gone up again. And now – because the thought is with inflation coming lower, UK interest rates will go lower in the future – they're running ahead of the base rate and they are dropping.

"So the cheapest two-year fix now is 4.1%. I mean, few people will get quite that low. And even more astoundingly, compared to historic periods, you'd normally be cheaper to fix for two years [but] because long-term interest rate predictions are lower, five-year, longer fixes are cheaper than two-year fixes."

Many people on SVRs are paying over the odds compared to the cheapest deals

"Now, what's really telling here is for people who are on... [Screen skips ahead.] Nope, nope, you've gone ahead. If there's a way to bring that back, that would be good...

"What is really telling here is for people who are on the standard variable rate, the gap between the standard variable rate and the fix rates, if we can see it..." [Screen skips through slides.] "Oh, it's all going. Live telly, everyone. Roll through. I'll do a dance. [Martin does a dance.] Right..." 

Jeanette: "Very good."

Martin: "OK, we're back. So you'll see here, look, you've got a traditional gap between the standard variable rate and the cheapest fix is just under 3%. Then we had the terrible Budget and you couldn't get anything. The standard variable rate and the fix was virtually equal. Now look at how the gap has grown. It shrank a little but right now we have the biggest gap we've seen in a very long time, well over 4%.

"If you're on the standard variable rate, if you're not on a cheap, fixed or discount deal, you are paying massively over the odds compared to the cheapest deals on the market. And that is crucially important."

UK interest rates are expected to come down, which is why fixed mortgage rates have dropped

"And I think you know where I'm going next. Where I'm going next is what's going to happen in the future?

"I'm out of breath after the dancing.

"What's going to happen in the future on the base rate? This is a prediction from Capital Economics. And as you'll see, they think UK interest rates are going to come down and continue to come down until the middle of 2025. This is why fixed rates have dropped. After that point, they're going to be pretty static, according to Capital Economics, and they're going to stay at around that sort of 3%-ish level.

"Now, lots of different economists have different predictions. Let's just check with Robert again, where are you? Are you different to that?"

Robert: "Very similar, maybe coming down a little bit slower."

Martin: "Coming down a little bit slower, but reaching the end point and then stabilising?"

Robert: "Yes."

Martin: "So that's a prediction. Variable rates will follow that and that is why fixes have come down. I need some water, Jeanette."

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