Surviving the market rollercoaster: Twists, turns and flickers of hope

For those of us navigating the financial and housing markets the last 12 months will have felt like a rollercoaster ride – filled with sharp turns, unexpected drops and the occasional glimmer of optimism.

The year began on a high note. Swap rates – the rates lenders use to price mortgages – tumbled between Christmas and New Year, with 5-year rates dipping as low as 3.3% and 2-year rates dropping below 4%.

This decline was largely fuelled by forecasts of easing global inflation and hopes that major central banks were poised to cut base rates multiple times in 2024.

For a moment, it felt like the storm clouds of economic uncertainty were finally parting.

SHORT-LIVED

But that optimism was short-lived. Inflation proved to be more stubborn than anticipated, and central banks grew increasingly cautious.

By mid-year, it was clear that the road to economic stability would be longer and bumpier than most of us had hoped.

Geopolitical events also added another layer of complexity. The war in Ukraine showed no signs of resolution and the October 2023 attack on Israel escalated into a full-scale invasion of Gaza.

This unrest drew other nations into the fray, turning the Middle East into a powder keg unlike anything we’ve seen in years. The ripple effects on global markets were significant, amplifying existing uncertainties.

Here in the UK, the announcement of a General Election in May put much of the economy on hold. The outcome – a Labour government taking office on July 4th – was widely expected but it didn’t provide the immediate economic boost many had hoped for.

BLACK HOLE

Chancellor Rachel Reeves’ much-anticipated October budget revealed a £22 billion fiscal black hole, cuts to pensioners’ fuel allowances and an increase in employers’ National Insurance contributions.

While Reeves’ commitment to avoiding VAT, income tax and national insurance hikes for "working people" was politically astute, it left her with limited options for raising funds.

Markets responded with scepticism and businesses faced tough decisions on how to absorb increased costs.

Despite these headwinds, when the final figures are released gross mortgage lending in 2024 is projected to have risen by 4% compared to 2023, reaching around £235 billion.

This resilience speaks volumes about the housing market’s underlying strength – and provides a springboard for cautious optimism as we enter 2025.

REASONS TO BE CHEERFUL

Looking ahead, there are reasons to be cheerful. Experts predict gross mortgage lending will climb by 11% to approximately £260 billion in 2025.

Base rate reductions will likely play a pivotal role. The Bank of England is expected to implement three or four cuts in 2025, gradually lowering the base rate. This should lead to a reduction in lenders’ standard variable rates (SVRs), improving affordability for borrowers and stimulating the purchase market.

Forecasts from major players – including Nationwide, Halifax, Savills and Capital Economics – predict house price growth of between 2% and 4% next year, further bolstering confidence.

That said, 2025 won’t be without its challenges.

BUSINESS PRESSURES

The increase in employers’ National Insurance contributions in April will add pressure on businesses, potentially impacting wages and hiring.

Inflation, while expected to ease, may not fall as quickly as we’d like, which could temper the pace of rate cuts.

Internationally, the prospect of Donald Trump returning to the White House raises concerns about trade tariffs and their impact on global markets.

Meanwhile, the risk of unemployment looms as a potential hurdle to sustained economic growth.

GREATER CONFIDENCE

Yet challenges often come hand-in-hand with opportunities.

A reduced base rate should foster greater confidence among both buyers and mortgage lenders which could lead to increased competition and better products and choice for borrowers.

While the year ahead is unlikely to be smooth sailing, the potential for growth in the housing market is undeniable.

Yes, there will be bumps in the road – there always are – but with careful navigation, 2025 could be just the year for you.

As ever, preparation will be your biggest asset. And remember, smart choices start with expert advice – speak to your mortgage adviser to get the best for your financial future.