So far, house prices are having a mixed 2024. The housing market made a confident start to the year, but has since had a wobble due to a slowdown in mortgage rate cuts.
The latest Halifax House Price Index (HPI) showed there was a monthly fall in property prices in March. These findings echoed the most recent Nationwide House Price Index, which found the usual spring bounce was more subdued than usual.
Buyers had been boosted by falling mortgage rates earlier in the year. But their downward trajectory has stalled somewhat amid market impatience with the Bank of England over when interest rates will fall. At its most recent meeting, the Bank opted to maintain the freeze on the base rate.
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Meanwhile, the latest Rightmove HPI recorded the biggest increase in prices for 10-months in March. The Zoopla HPI also saw growth in prices in that month, which it said was being matched by a leap in activity.
It reflects what some commentators are describing as renewed confidence in the housing market after prices didn't crash - as many predicted - during 2023. If you're on the hunt for a new home - or are merely interested in market movements - it's worth checking all house price reports as each relies on different data.
While Halifax and Nationwide’s indices refer to their own mortgage lending activity, the ONS HPI gives a broader overview of all sales in the market, including from cash buyers. However, it also lags around a month behind the other estimates.
So, as the property market faces its biggest challenge in decades, what is the outlook for the rest of the year and into 2024?
Is there buyer demand for property?
High mortgage rates and the cost of living crisis dampened demand in the housing market for much of last year but new statistics from the Royal Institution of Chartered Surveyors (RICS) suggests confidence is returning amid hopes of interest rate cuts.
Property website Zoopla has also said the number of buyers home hunting has increased 10% annually at the start of 2024, helped by lower mortgage pricing and the prospect of interest rate cuts earlier than expected this year.
Despite a rise in demand, Richard Donnell, research director for Zoopla, said UK sellers are typically having to accept offers around 95% of the asking price as buyer purchasing power has been reduced by higher mortgage rates.
“Our data shows we are still locked in a buyers market, so it’s unlikely that we will see prices rise in 2024 at a national level. But at the same time, they haven’t fallen much over the last 12 months, despite mortgage rates more than trebling since 2021," he says.
“We believe that house prices still need to adjust to higher mortgage rates, even though these are now falling and appear to be on track to get into the 4%-4.5% range later this year. This means sellers have to remain realistic on what someone will pay for their home and seek advice from an estate agent on how best to get their home ready to sell.”
Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, warns that there are risks to a ‘wait and see approach’ if buyers are hoping for mortgage pricing and house prices to fall further.
“Even if mortgage rates fall, if buyers and sellers return in their droves, it’s going to mean more competition, and it could push prices higher,” she says. “What you save through a lower mortgage rate you could lose through higher prices.”
HOW IS THE HOUSING MARKET PERFORMING?
House prices experienced rapid growth throughout the pandemic thanks to a combination of stamp duty cuts, low interest rates and the “race for space". However, the combination of rising interest rates and the cost of living crisis started hitting buyer confidence last year – and house prices have been falling since.
“There are still significant challenges in saving up enough for a deposit and affording higher mortgage payments,” says Tim Bannister, Rightmove’s director of property science.
Nationwide said someone earning an average income and purchasing a typical first-time buyer home with a 20% deposit would spend 38% of their take-home pay on their monthly mortgage payment – well above the long-run average of 29%.
This is feeding into the housing market and sellers are having to consider discounting their asking prices to secure a sale, according to Zoopla. Buyers are securing an average of £10,000 off the asking price of a property, the listings website said.
While mortgage rates have been falling recently, pricing remains high and some lenders have pulled the top deals due to high levels of demand and amid increases in swap rates. Brokers have warned that mortgage rates have gone back up slightly since the start of February 2024 as the cost of wholesale funding has increased and hopes of a sooner than expected interest rate cut from the Bank of England dissipate.
The average two-year fixed mortgage deal is currently 5.80% according to data from Moneyfacts, while the average five-year fix is 5.39%.
Of course, when we talk about UK house prices, these are averages - and there are big regional variations across the country. Office for National Statistics figures show typical prices in England fell 1.5% annually in January, with property in London seeing an average fall of 3.9%. But prices grew 4.8% in Scotland, with Welsh prices dipping 0.8%. You can see what's happening in your area with the ONS's new tool.
Figures from the Bank of England shows mortgage approvals have been rising each month so far in 2024, which is an indicator of future demand.
What will happen to house prices in 2024?
Much of the direction of the housing market and property prices will depend on mortgage pricing. Some analysts have revised their forecasts as inflation slows and some of the best buy mortgage rates have fallen below 4%.
Estate agency and property brand Knight Frank had previously predicted a 4% drop in prices but now believes they will actually rise by 3% this year. The Office for Budget Responsibility (OBR) has said it expects avereage prices will have fallen by 2% by the end of 2023, which is less severe than the 5% it previously predicted.
Meanwhile, analysis by Go.Compare suggests that if average mortgage pricing falls to 4.3%, homeowners could see 10.5% added to their house price, Go.Compare said. That is a pretty bullish view though compared with other forecasts.
Zoopla has predicted that UK house prices will fall by 2% during 2024 based on mortgage rates dropping to 4.5% by the end of the year and remaining there into 2025. The property website also estimates there will be one million sales in 2024, but it suggests this could be higher if mortgage rates fall back towards 4%
Rightmove has forecast that asking prices will drop by 1% as sellers become more realistic to secure a sale amid higher borrowing costs for buyers.
Analysts at Capital Economics predict house prices will fall by 5-6% by mid-2024, because "we think that mortgage rates will stay around their current high level until next summer".
Lloyds Banking Group thinks prices will continue to slide, and will not start to recover until 2025. It is predicting a decline of 2.4% in 2024.
Halifax has predicted that house prices will fall between 2% and 4% in 2024 as economic market conditions and "affordability pressures" continue to put pressure on the property market. In a separate report, Nationwide said it also expects a single digit decline in house prices in 2024 - or for them to simply remain flat.
Savills estimates that the market will “bottom out” around the middle of this year.
Its latest five-year forecasts predict the average house price will fall by 3% in 2024 but will be followed by price increases in 2025, 2026, 2027 and 2028 as affordability pressures slowly ease.
Prime central London is expected to see the least downward pressure on prices, given much less reliance on mortgage debt and the relative value on offer to a range of wealthy domestic and international buyers.
Transactions are expected to remain at around 1.01m in 2024, rising to 1.16m per year at the end of the forecast period in 2028, as mortgage buyers gradually return to the market.
“Interest rates are expected to have peaked and the worst of the house prices falls look to be behind us, but the first cut to rates still looks to be some way off,” says Lucian Cook, head of residential research at Savills.
“This means continued affordability pressures are likely to result in further modest house price falls over the first half of 2024, resulting in a peak-to-trough house price adjustment in the order of minus 10%.
“The expectation of a gradual reduction in rates suggests a progressive restoration of buying power and steady recovery in demand.”
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