After two years of the most dramatic shift in UK mortgage rates in a generation, the property market enters 2024 in a state of careful recalibration. The period of sub-2% fixed-rate mortgages that characterised 2020 and 2021 — and that fuelled the pandemic property boom — feels like a different era. In its place, homeowners, buyers, and landlords are navigating a market in which the Bank of England base rate has risen from its historic low of 0.1% to a level of 5.25%, and where mortgage products are priced accordingly.
The question for anyone engaged with the UK property market in 2024 — whether as a buyer, seller, homeowner, or investor — is what this interest rate environment means for them specifically, and what the likely trajectory of rates through the year holds for property prices, transaction volumes, and affordability.
Where Mortgage Rates Stand Heading Into 2024
The Bank of England’s rapid rate-rising cycle — the fastest since the early 1990s — appears to have reached or be approaching its terminal point as 2024 begins. The base rate of 5.25% has been held through the latter part of 2023, and the consensus among economists and market analysts heading into 2024 is that the next move will be downward, though the timing and pace of rate cuts remains uncertain and contested.
For mortgage holders, the base rate’s direct impact depends on the type of mortgage:
Tracker mortgage holders have seen their payments rise in direct lockstep with base rate increases. A tracker mortgage that followed the base rate from 0.1% to 5.25% has seen the rate component of the product increase by 5.15 percentage points — a very substantial increase in monthly costs for anyone on this product type.
Standard variable rate (SVR) holders have similarly experienced significant payment increases. SVRs are set by lenders at their discretion, typically at a margin above base rate, and have risen significantly as the base rate rose. SVRs from major lenders in early 2024 are running at 8–9%.
Fixed rate holders have been insulated from rising rates for the duration of their fix — but the significant volume of two and five-year fixed rate deals taken out during the 2020–2022 period of ultra-low rates are now coming to the end of their fixed terms. The homeowners who fixed at 1.5% in 2021 and whose deal expires in 2024 are facing a refinancing environment in which new fixed rates are running at 4–6%. This mortgage payment increase — sometimes described as the “mortgage cliff” — is one of the defining financial pressures on UK households entering 2024.
First-time buyers are facing the double pressure of higher mortgage rates and property prices that, while they have moderated from their 2022 peak, remain substantially elevated relative to average incomes. Affordability for first-time buyers in 2024 is tighter than at any point in living memory.
The “Mortgage Cliff”: What Happens When Fixed Deals Expire
The number of households whose fixed-rate mortgage is due to expire in 2024 is substantial. Estimates from UK Finance and the Office for Budget Responsibility suggest that approximately 1.5 million households are expected to refinance from fixed-rate deals onto new products through 2024, with many of these transitioning from deals taken out at 1–2% rates.
The payment shock for these households varies with their outstanding mortgage balance, but the arithmetic is significant. A household with a £200,000 mortgage balance at 1.5% fixed is paying approximately £800 per month. Refinancing onto a 5.5% fixed rate over the same remaining term would raise this to approximately £1,150 per month — a 44% increase in the mortgage cost alone.
In practice, the impact has been more moderate than the most alarming forecasts suggested for several reasons:
Lenders have been flexible on term. Many households refinancing in 2024 are extending their mortgage term — adding years to reduce the monthly payment impact of the higher rate. This reduces the monthly payment at the cost of more total interest paid over the life of the loan.
Income has grown. Wage growth has been running above 6% in 2023, meaning that the real affordability hit — monthly mortgage cost as a proportion of take-home pay — is less severe than it would be if incomes had been stagnant.
Savings have provided a buffer. Many households accumulated savings during the 2020–2021 period when spending was restricted, and some have used these to make capital reductions to their mortgage balance at refinancing.
Nevertheless, the impact on household finances is real and is visible in consumer spending data and in the housing market’s transaction volumes.
What Higher Rates Are Doing to Property Prices
The relationship between mortgage rates and property prices is well-established in theory — higher borrowing costs reduce the maximum amount buyers can borrow, reducing demand and putting downward pressure on prices — but the UK property market’s response has been more nuanced than a simple inverse correlation.
Prices have fallen modestly from the 2022 peak. UK house prices peaked in mid-2022 and have declined from that peak — Nationwide and Halifax indices have recorded annual falls of approximately 2–4% through 2023, with the Halifax recording a 1.7% fall in the year to November 2023. These are, however, falls from an extraordinary peak. UK house prices remain significantly above pre-pandemic levels even after the adjustment.
The falls have been geographically uneven. London and the South East have seen more pronounced price falls than the Midlands and North, partly because prices were higher relative to incomes in these areas before rates rose (leaving less buffer before affordability became a binding constraint), and partly because London’s international investor dimension has been more directly affected by sterling and global risk appetite movements.
Transaction volumes have fallen significantly. If prices have not fallen as dramatically as some predicted, transaction volumes have. The number of property transactions in the UK has fallen substantially from the pandemic era’s elevated levels. Potential buyers and sellers are effectively on a wait-and-see basis — waiting to see where rates settle before committing to major transactions. This “frozen” market means that while the sellers who must sell are transacting at prices that reflect current affordability, the majority of potential movers are deferring decisions.
The absence of a price collapse is partly explained by supply constraints. The UK has a persistent structural undersupply of housing. This supply constraint acts as a floor under prices — when demand falls, the supply does not increase (there is not a flood of distressed sellers, as the significant and unexpected fall in mortgage rates that occurred in the 2008 financial crisis produced). The combination of lower demand and constrained supply has produced a moderate price adjustment rather than a crash.
What 2024 Rate Expectations Mean for the Market
The market’s direction in 2024 is heavily dependent on the trajectory of the Bank of England base rate and, consequently, on what lenders price into their fixed-rate mortgage products.
The consensus expectation heading into 2024 is that the Bank of England will begin cutting the base rate through the second half of 2024, with markets pricing in 3–4 base rate cuts through the year — bringing the base rate down from 5.25% toward 4% or slightly below by the end of 2024. If this scenario plays out, mortgage rates on new fixed products — which are priced against swap rates (the market’s expectation of where rates will be for the duration of the fix) rather than directly against the current base rate — would fall from their current levels of approximately 5–6% for a two-year fix.
The implications for buyers and sellers:
For potential buyers who have been sitting on the sidelines waiting for affordability to improve, rate cuts through 2024 would increase the maximum they can borrow and reduce monthly costs. This improved affordability, arriving as the supply of homes for sale is also somewhat compressed, could re-stimulate demand and support prices.
For sellers who have been reluctant to test a subdued market, evidence of improving affordability and returning buyer demand could be the prompt to list. An increase in both buyers and sellers entering the market — which is what a rate-cut environment in the second half of 2024 could produce — would increase transaction volumes significantly.
For homeowners refinancing in 2024, the prospect of rate cuts creates a tactical decision: fix for two years (accepting the current higher rate but anticipating being able to refinance at lower rates when rates have fallen) versus fixing for five years (potentially missing rate falls but securing certainty for a longer period). There is no universal right answer — it depends on the homeowner’s risk tolerance, financial circumstances, and assessment of the rate environment.
The Impact on Different Market Participants
First-Time Buyers
First-time buyers face the most challenging affordability environment. The combination of elevated property prices — still significantly above pre-pandemic levels in most markets — and mortgage rates that are 4–5 times the historic lows means that the monthly cost of a mortgage on a typical first-time buyer property is higher relative to average incomes than at any point in recent history.
Government support schemes available in 2024 include the mortgage guarantee scheme (supporting 5% deposit mortgages), the Lifetime ISA (which provides a 25% government bonus on savings up to £4,000 per year toward a first home), and shared ownership. None of these fundamentally resolves the affordability equation created by the combination of high prices and high rates, but they mitigate specific barriers for specific buyer profiles.
The expectation of rate cuts through 2024 may improve affordability sufficiently to encourage some first-time buyers who have been deferring to re-enter the market in the second half of the year.
Existing Homeowners Moving House
For homeowners moving house — selling one property and buying another — the rate environment creates a specific dynamic. Their property has probably fallen in value from its 2022 peak, but so has the property they are buying. If both are in the same local market and the same price bracket, the relative impact is broadly neutral. The challenge is the mortgage: they are likely refinancing their borrowing from a low rate to a higher one, increasing their monthly costs.
The demographic that is least affected by this concern is the equity-rich older mover — the homeowner in their 50s or 60s who is selling a family home with low remaining mortgage and buying a smaller property with a very small mortgage or cash. These buyers remain active and are relatively insulated from the rate environment.
Landlords
Buy-to-let landlords are among the market participants most acutely affected by the rate environment. Buy-to-let mortgage rates are typically higher than residential rates, and the affordability assessment that lenders apply to buy-to-let mortgages — which requires the rental income to cover the mortgage payment at a stressed rate — has become significantly more demanding as rates have risen.
Many landlords who borrowed at low rates to build portfolios are facing mortgage costs that significantly reduce their net rental yield, or in some cases exceed their rental income after costs. The combination of higher mortgage costs, increased regulatory requirements (from EPC compliance obligations to changes in Section 21 eviction procedures), and changes to mortgage interest tax relief has prompted a meaningful number of landlords to sell portfolio properties. This is contributing to some additional supply in the sales market — properties formerly rented coming to sale — which partially offsets the supply constraint from the main residential market.
For new buy-to-let investors in 2024, the arithmetic of yield versus mortgage cost requires a much higher rental yield to justify the investment than was needed when rates were at historic lows.
What to Expect Through 2024
The most likely scenario — based on Bank of England communications and market pricing as we enter 2024 — is a year of gradual improvement:
Rate cuts beginning in the second or third quarter of 2024, bringing the base rate down incrementally. Mortgage fixed rates falling as swap rates adjust to expectations of lower rates. Transaction volumes recovering as improved affordability brings buyers and sellers back to the market. Property prices stabilising or recovering modestly from the 2023 adjustment — with the recovery being stronger in markets where the fundamental undersupply of housing is most acute.
The risks to this scenario are primarily on the upside for rates (inflation proving more persistent than expected, requiring the Bank to hold rates for longer or raise them further) and on the downside for economic growth (a recession that would affect incomes and employment, reducing property demand despite lower rates).
For households and investors making decisions in 2024, the advice from most mortgage advisers and property professionals is consistent: do not wait for the perfect moment. The rate environment in 2024 will be better than 2023, and 2025 may be better still. But property decisions made at the right moment in someone’s life — the right property, in the right location, that serves the household’s genuine needs — are rarely wrong in the long run regardless of where interest rates sit on the day of exchange.
Practical Steps for 2024 Mortgage Decision-Making
Get a mortgage in principle before searching. In a market where sellers are cautious about accepting offers from buyers whose financing is uncertain, having a mortgage in principle from a lender confirms you are a credible buyer and strengthens your position.
Use a whole-of-market mortgage broker. The mortgage market in 2024 is complex — rates are changing frequently, criteria vary significantly between lenders, and the best product for a specific borrower’s circumstances is not necessarily from the most-advertised lender. A whole-of-market broker with access to the full range of products provides meaningful value.
Consider shorter fixes in anticipation of rate cuts. If market consensus on rate cuts through 2024 is correct, a two-year fix taken in early 2024 positions a borrower to refinance at lower rates in 2026. A five-year fix taken now locks in current rates for longer, which provides certainty but may prove more expensive if rates fall significantly.
Budget conservatively. In a period of economic uncertainty, buying to the maximum of a mortgage offer is a higher-risk strategy than it would be in a period of stable, low rates. Building in a buffer against potential income changes or rate fluctuation is prudent financial planning regardless of where rates are expected to go.
The UK property market in 2024 is not the market of 2021. But it is not the crashed market that some feared. It is a market in transition — adjusting to a new rate environment, with the direction of travel pointing toward more favourable affordability conditions through the year. Understanding this context is the foundation for making property decisions that serve households well in 2024 and beyond.
