Is 2024 time to buy as house prices stabilise? The latest data says… maybe?
House prices are expected to fall by two per cent next year, according to the latest reading from Zoopla, as the hangover from high mortgages appears to be dragging into next year. While slipping house prices can often be an indicator of poor economic health, house prices still remain around £40k above pre-pandemic levels.
The property portal said that housing affordability needs to improve next year to entice buyers back to the market.
While UK house prices have fallen less than what the market expected over the year, 5% mortgage rates have limited housing affordability for many would-be buyers. “To see a meaningful reset when it comes to affordability, house prices will need to fall further as incomes increase,” the firm said.
“assuming mortgage rates drop to 4.5% by the end of 2024, Zoopla expects that house price growth will remain negative with prices down two per cent next year.”
A decision by the Bank of England to consistently hike interest rates in a bid to tackle rising inflation, sent the mortgage market into a frenzy and lenders to raise their prices.
UK homeowners and potential buyers searched on Google for a mortgage related term every 23 seconds in 2023, according to a study by the property group. Despite buyers remaining more cautious, the average time to sell a property in 2023 was 34 days – up from 25 days last year. Throughout the year, Kensington and Chelsea in London emerged as the most expensive local authority in the UK with an average house price sitting at £1.20m.
The cheapest London borough was Barking and Dagenham where the average price of a home was £332k, followed by Bexley where the price of a pad typically went for £395k.
UK house prices likely to fall by 1% next year, says Rightmove
Average house prices in the UK will fall by 1% next year as competition increases among sellers, Britain’s biggest property website has forecast. Sellers were likely to have to price more competitively to secure a buyer in 2024, while mortgage rates would settle down though “remain elevated”, said Rightmove.
A year ago, Rightmove predicted that average asking prices would fall by 2% in 2023. Last week the company said "the average was 1.3% lower than in 2022 as the property market continued to contend with significantly higher mortgage costs and a cost of living crisis that refused to go away."
The website records asking prices rather than the actual one properties are sold for. It said it was predicting that these would typically be 1% lower nationally by the end of 2024. The market was continuing its transition to “more normal levels” of activity after the busy post-pandemic period, it added.
Rightmove said the number of sellers who had had to cut their asking price during 2023 had risen to 39%, compared with 29% last year and 34% in 2019.
Tim Bannister, a property expert at Righmove, said “an average drop of 1% in prices reflects our prediction that it’s likely to be another muted, and in parts challenging, year for some buyers and sellers in 2024. The better-than-anticipated activity this year has shown that many buyers are still getting on with satisfying their housing needs, and there is considerable opportunity for sellers and their agents to attract these buyers with the right pricing.”
On Friday, Nationwide building society surprised some observers when it announced that prices were up 0.2% month on month in November, after a 0.9% increase in October and a 0.1% rise in September. However, it said that on a year-on-year basis, prices were down 2% in November.
Last week, the property website Zoopla said market conditions were the best for buyers since 2018, when Brexit uncertainty hung over the market. There was better news for people having to remortgage next year. The mortgage broker John Charcol predicted on Friday that the rates on some new fixed-mortgage deals could dip below 4% by mid-2024.
Rightmove said "average mortgage rates had now fallen steadily since July, providing movers with much more stability and certainty over the type and cost of mortgage offer they are likely to receive."
But while the outlook for mortgage rates had improved, with many commentators believing interest rates may have peaked, the property website said "affordability remains stretched for many buyers."
As the Bank of England signals that any cuts to its base rate are not imminent and that borrowing costs are likely to remain elevated during 2024, “some buyers’ spending power will remain limited”. said Rightmove.
Halifax predicts UK house prices will fall 2-4% in 2024
Halifax, the UK’s leading mortgage lender, is forecasting a steeper drop in house prices for 2024 than was seen this year, ranging from 2% to 4%. In 2023, the average house price was £283,615, only 1% lower than 2022, despite the impact of higher interest rates on the property market.
Now Kim Kinnaird, the director of mortgages at Halifax, said “to some extent this masks the fluctuations we’ve seen in the housing market throughout 2023. As wider economic headwinds began to bite, house prices fell for six consecutive months between April and September, before rising again later in the year as prospects improved.”
Pushed up mortgage rates making borrowing more expensive
The Bank of England raised its base rate several times in 2023 to curb inflation, which peaked at 6.2% in October, and this pushed up mortgage rates making borrowing more expensive for home buyers.
However, mortgage rates have since fallen sharply and the Bank has kept rates unchanged at its last three meetings, with further cuts anticipated in 2024.
Ms Kinnaird said "that many homeowners have not yet felt the full effect of higher rates, as they are still on fixed-rate deals that will soon expire. Higher interest rates, and the resulting squeeze on affordability, gave many potential home buyers pause for thought when considering making a move over the last year. Mortgage approvals were down a quarter across the market, while overall housing transactions were a little under 20% down – both the lowest in at least a decade.”
The fast increase in rents
Ms Kinnaird added "that first-time buyers have been relatively active, despite the financial challenges they face – including the fast increase in rents, which rose by more than 8% in the year to October. First-time buyers have adjusted their expectations, such as buying smaller properties, to cope with higher borrowing costs. The effect of rising mortgage rates has been partly offset by rapid pay growth, which reached almost 8% in the middle of the year. Compared to the increase in average pay, the real term fall in house prices has been around 13% since August 2022, reducing the average house price to income ratio to its lowest since 2015."
‘Financial markets are pricing in cuts’
Ms Kinnaird continued “looking ahead, now that inflation is falling back, financial markets are pricing in cuts to Base Rate during 2024. Mortgage rates are already falling, with a typical 5-year fixed 75% LTV deal now below 5%, having been as high as 5.7% as recently as July. All being equal, these rates are expected to fall further over the coming months. However, while pay growth is now above inflation – beginning to ease the cost-of-living squeeze for some – other factors will continue to weigh on households’ spending power next year. Economic growth is expected to remain weak, with unemployment rising and frozen tax thresholds limiting any increase in take home earnings."