Drop in mortgage costs boosts home sales

A fall in mortgage rates to the lowest level in 15 months is supporting a rebound in the property market, with home sales agreed up by a quarter compared to a year ago.

Data also shows a rise in mortgage approvals as affordability has improved. But which way will mortgage rates go over the next few months?

Home sales up 25%

In the last month, new sales agreed are 25% higher than the same period last year as households that have held off making moving decisions return to the market, property website Zoopla reports.

"Lower mortgage rates are delivering a much needed confidence boost to homeowners, many of whom have sat on the sidelines over the last two years," said Richard Donnell, executive director at Zoopla. "Market activity is up across the board and expectations of lower borrowing costs will continue to bring buyers and sellers into the market."

Year-on-year, 12% more homes are up for sale -- both as a result of homeowners looking to move as mortgage rates fall and also due to investors and second home owners selling in response to recent tax changes and possible further tax changes in the upcoming October Budget. Reflecting this second group of sellers, a third (32%) of homes for sale on Zoopla are currently 'chain free'.

Lenders approve more mortgages

With mortgage costs coming down, more buyers have been able to find a mortgage deal that suits their needs and their budget.

The latest data from the Bank of England shows that mortgage approvals have risen to their highest level in two years.

Lenders approved 64,900 mortgages for house purchases in August, up from 62,500 in July. Approvals for remortgaging also increased, rising from 25,200 to 27,200, after five consecutive month-on-month decreases.

Net borrowing of mortgage debt by individuals amounted to £2.9bn in August, compared to £2.8bn in July.

Will mortgage rates go up or down?

Commentators are divided on the likely future direction of mortgage rates.

Intense competition among lenders in recent months has helped to drive down the rates charged on new fixed mortgage deals. And Andrew Bailey, governor of the Bank of England, said in early October that the central bank could be "a bit more aggressive" in its approach to lowering borrowing costs. The Bank cut the base rate from 5.25% to 5% in August, the first decrease in more than four years.

However, the swap rates that underpin fixed rate mortgage pricing have been creeping up again in the past week and some lenders have begun to increase their rates.

"Fixed rate pricing depends on what the market anticipates may happen to interest rates and uncertainty over the forthcoming Budget, mixed messages from the Bank of England and global unrest is pushing costs back up for lenders," explained David Hollingworth, associate director at mortgage broker L&C Mortgages.

"Swap rates are a good indicator of the direction of fixed rate pricing, and they have bounced back up. If that persists, fixed rate improvements will be brought to an abrupt halt and edge back up."

Buyers' market

For those looking to buy over the next few months, house prices are expected to be kept under control by the increase in supply as well as continued affordability challenges, especially in southern England.

Zoopla found that over a third of sales (37%) are being agreed at more than 5% below the initial asking price, which points to house price growth staying in low single digits.

"We remain in a buyers' market and greater choice of homes for sale will keep house price inflation in check into 2025," concluded Zoopla's Richard Donnell.