Cast your mind back to late 2022. Things looked bleak. The Government’s autumn mini-budget had tanked the UK economy and most property pundits were certain it was a case of ‘how far’ rather than ‘if’ house prices would fall. It wasn’t unusual at the time to see gloomy predictions of 10-15% drops and a property sector in meltdown.
Price drops did happen, generally, 1-2% depending on whose figures you rely on. And, yes, transaction numbers shrank. Back in the autumn, Zoopla forecast that the number of UK housing transactions completed in 2023 is set to be over 20% lower than 2022.
However, despite this, the property market proved remarkably resilient. The eventual toll of a year of economic strife appears to be much milder than first anticipated. This brings us to 2024. What does the New Year have in store? Could we see a recovery? And have skyrocketing mortgage rates finally peaked? Here’s what we’ve managed to discover.
A Partial Recovery?
Let’s deal with the bad news first. Anyone expecting a rapid rebound in the housing market is likely to be disappointed. Building society, Halifax is predicting single-digit declines in house prices in 2024. It expects that the unholy alliance between the cost of living crisis and high interest rates is going to exert downward pressure on prices for some time yet.
But it’s not all worry and woe. Even though Halifax expects a fall in house prices, its prediction is between 2 and 4 per cent – hardly the stuff of nightmares. Meanwhile, Nationwide also believes prices will decline by a single digits or remain broadly flat. Both also believe that this could represent the first shoots of recovery, in expectation of a return to growth later in the year as interest and mortgage rates ease.
It’s not much, admittedly, but it at least represents some positive news after a fairly mundane year in 2023.
House Prices to Grow in Some Surprising Regions?
There is an alternative viewpoint to Nationwide and Halifax’s caution. The National Association of Property Buyers (NAPB) has a sunnier attitude towards the likelihood of growth, forecasting that some UK regions will see house-price growth in 2024.
Alongside the usual suspects (yes, London is on the list), the NAPB predicts areas such as
Margate, Bolton, Liverpool, Reading, Derby and York will see growth. To come up with these projections, the NAPB has focused on areas that are already experiencing growth due to housing shortages. It cites Halifax in West Yorkshire (3.6% in 2023) and Motherwell in Scotland (2.4%) as key examples of this trend.
How likely is this? Well, the NAPB is right to highlight growth in some areas of the market. Throughout the downturn of the last year, where you are has determined how house prices look. Some 70 of 375 local authorities saw growth last year with areas such as Powys in Wales (17.4%) and East Lindsay in the West Midlands (13.3%) experiencing impressive rises.
Even within London, house price rises have been highly localised. Prices in Ealing (7.5%), Westminster and The City of London (7.4%), Haringey (1.7%) and Southwark (0.3%) all rose in 2024, largely due to local conditions. Meanwhile, prices across the wider city remained flat or went into decline.
This appears to demonstrate that in limited cases, local conditions – be that infrastructure investment like Crossrail, housing shortages, or an increase in an area’s desirability – can trump national trends. We expect to see more of this in 2024 .
What About Mortgage Rates?
Next up, is the million-dollar question: will mortgage rates come back down? We all know that spiking mortgage rates have been one of the key drivers of shrinking demand in 2023. However, the good news is that most commentators think mortgage rates have peaked. And, data from Right Move appears to back this up with the average five-year fix now at 5.11%, down from 6.1% in July.
What comes next depends on the Bank of England (BoE). Most economists agree that the BoE will cut interest rates in 2024 as the economy stabilises, but there’s little consensus on when it will happen. Some think the first cut could come as early as May with rates falling back down to the 4% mark by the end of the year. Meanwhile, others believe that the BoE will be far more cautious and rates could stay at around 5% until late 2024.
Despite the optimism, it is worth adding a caveat. Even if rates dip, many homeowners could still be forced to shell out on higher mortgage payments. According to the Investor’s Chronicle, 45% of mortgages secured before the rate rises are yet to be renewed. As these come due, homeowners will be forced to remortgage at much higher rates, impacting affordability and confidence in market conditions for some time to come. This could continue to act as a brake on growth throughout 2024 .
Will a Spring Election Make Any Difference?
With Prime Minister Rishi Sunak confirming that the next general election will happen at some point in 2024, it looks increasingly likely that predictions of a spring election are well-founded. But what does this mean for the housing market?
In the past, a general election usually precipitated a temporary slowdown in the market, as potential buyers put off a move to wait and see what the new government did. Things are slightly different this time around. Both Labour and the Tories are pitching their tents firmly in the centre ground, meaning radical housing policy from either is unlikely.
Yes, Labour has committed to building more homes and possibly clamping down on second-home ownership, but neither of these policies is particularly radical (or that different from the Conservative’s approach). Likewise, despite its popularity among younger voters, we’re also unlikely to see much in the way of buy-to-let regulation from either party.
The only policy area we’d recommend keeping an eye on in the longer term is leasehold reform. As we’ve discussed in previous blogs, leasehold is a deeply unpopular and archaic concept and there are certainly elements in both major parties who’d like to see it abolished. The debate will continue to rage on in backrooms as it has for decades, but perhaps a change of government could bring it back to the forefront of policymakers’ minds.
Some Conclusions…
To conclude, the UK housing market looks set to continue its slow recovery in 2024. Nevertheless, its trajectory does look encouraging, with some regional growth and an end to sharp declines elsewhere.
Much, however, depends on external factors. The earlier the BoE decides to cut rates, the more likely we are to see a return to rising transaction levels in 2024. By the same token, a more cautious approach could see growth deferred until 2025.
Whatever happens, any further external shocks notwithstanding, it’s clear we’re past the worst of the last year or two. So, as 2024 dawns, conveyancers should be looking ahead with a sense of cautious optimism.
