What to expect from the housing market in 2024
The year 2023 for the housing market can be described as the calm after the storm, if that is even a thing. High-interest rates, falling house prices, and increasing rents dominated the housing agenda for 2023. The forecasts of a housing market crash were unfounded, with house prices falling by a mere £3,411 or 1.2% over the year, dropping the average UK house prices to £287,782, according to the Office for National Statistics (ONS). Significant increases came, however, in the private rental sector, as rents increased by 6.2% over the year, the highest increase since records began in 2006.
As 2024 begins, we look at what the year might hold for the housing market; we can expect some significant policy announcements as we head to the polls this year as both parties look to attract voters, and housing has always been a critical agenda for voters. Here are a few key things we can expect in 2024.
Help for First-time-buyers:
The number of people buying their first home fell to a decade low last year, as rising interest rates and the end of the Help to Buy put a break on the sales. Last year, only 290,000 first-time buyers got onto the property ladder, down by 22% compared to 2022. The rapid increase in interest rates over the past 18 months has made house buying much more expensive, with the Yorkshire Building Society estimating that, on average, 22% of a homeowner's income goes towards mortgage repayments. To counter that, the government is looking at a few policies which could be announced before the general election to help first-time buyers get onto the property ladder.
The Housing Secretary Michael Gove confirmed last week that he would "definitely" have a new offer for first-time buyers by polling day. If rumours are to be believed, then the government could back longer-term fixed mortgages, such as the 30-year fixed rates that are common in the United States, to reduce the amount first-time buyers will need for a mortgage and a revived version of the Help to Buy scheme is also being discussed.
Expect mortgage rates to fall:
HSBC and First Direct became the first lenders this week to offer a sub 4% mortgage product, and competition amongst banks to win customers is likely to continue. Mortgage approvals in November remained 24% lower than the pre-pandemic average, and as a result, mortgage market competition is likely to heat up further.
On the back of a better-than-expected set of data on inflation for November, where inflation fell to 3.9% from 4.6%, the SWAP rates have fallen sharply as markets expect the Bank of England to cut the base rate faster than they had initially anticipated. Because SWAP rates are falling, the banks can now offer more competitive rates to mortgage holders or those aspiring to get onto the property ladder. If inflation continues to fall, which is widely expected, then the SWAP rates could fall further. Expect average mortgage rates to be priced sub 4% by the end of this year, meaning increased affordability for those looking to get onto the property ladder and good news for the 1.5 million homeowners whose fixed rates end this year.
Cheapest two-year and five-year fixed rates (correct as of 05/01/24)
Sellers become more realistic about prices.
Estates agents Yopa reported that 2,019 properties that failed to sell last year returned to the market for the new year bounce, with the average price £8,486 lower than what they were initially listed last year. They indicated sellers will likely be slightly more realistic when their properties hit the market. Rightmove expects asking prices to drop by 1% this year; this, along with interest rates falling, could see housing market activity improve comparatively to last year.
Rents will continue to increase.
150,000 buy-to-let landlords will see their monthly mortgage payments jump by hundreds of pounds in 2024 as long-term fixed deals come to an end. For a buy-to-let landlord with a £150,000 interest-only loan, monthly payments could increase by almost £200 a month or an extra £2,250 a year. In addition, there are now 300,000 fewer landlords compared to 2016, and rents look set to continue to increase in 2024. This after an increase of 6.2% last year.
Rents this year will find a ceiling but will continue to increase, nonetheless. With a shortage of rental homes coupled with high-interest rates and more regulation for the private rental sector, the rents will continue to increase. Expect rents to increase by another 4% to 5% this year.
House prices forecast:
As the chart below highlights, predicting house prices is pointless. All twelve think tanks have very different forecasts for the year ahead, showing little point in paying attention to housing forecasts. The forecasts range from a 5% increase in house prices to a 4.7% fall next year. We will add to the twelve and highlight key facts that might impact house prices this year.
A combination of things will likely impact the housing market this year; with inflation falling and GDP contracting in the last two quarters of 2023, the Bank of England will likely cut its base rate for the first time in 2 years. No one knows by how much, and it will most likely depend on the inflation and economic data over the next few months. If inflation falls below 3%, likely as fuel and gas prices are forecast to drop substantially in April and the economy continues to contract, the BOE could cut rates much faster than most markets are pricing in. Expect base rate cuts of between 0.50% and 0.75% this year.
This, along with sellers becoming more realistic on pricing, should positively impact people's affordability this year, resulting in a higher volume of property transactions than last year. We expect the volume of transactions to be higher this year rather than growth. It is essential to make that distinction. We are more aligned with Nationwide and Hamptons, where we expect little to no growth in the housing market this year. We expect the market to remain stagnant this year and start to pick up by Q4 next year, leading to a strong 2025 for the housing market.