House prices across the UK are set to fall by between 2% and 4% in 2024, according to the country’s top mortgage lender Halifax, a steeper fall than we saw in 2023.
The average house price in the UK is at £283,615 after the property market proved surprisingly resilient in 2023, with average prices only down by 1%. Director of Halifax Mortgages Kim Kinnaird, however, noted that prices did fall more quickly in the middle of the year, before recovering in recent months.
She 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.”
Higher interest rates, to bring down inflation, led to the decline in house prices in 2023. Mortgage rates soared over the summer as the Bank of England continued to raise its base rate.
Mortgage rates have fallen dramatically in recent months, and the Bank of England has held rates at each of its last three meetings with big cuts expected in 2024. But, due to the prevalence of fixed-rate mortgage deals, many homeowners have still not yet felt the impact of higher rates, and are likely to have to pay more soon when they agree a new fixed deal.
Kinnair said: “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.”
“We’ve also seen activity among first-time buyers fare relatively well, despite the obvious financial hurdles they face. This could be down to rapidly rising rents – up by over 8% in the year to October. We’ve seen first-time buyers adjusting their expectations to enable them to still get on the property ladder, such as buying smaller properties, to compensate for higher borrowing costs.
“The impact of rising mortgage rates has also been partially offset by rapid pay growth, which accelerated to almost 8% across the middle of the year. In comparison to the rise in average pay, the real-term decline in house prices has been around 13% since August 2022, taking the average house price to income ratio down to its lowest since 2015.
“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.
“Overall, with the combination of cost of living pressures and interest rate levels that are still much higher than even two years ago, we will likely see continued mild downward pressure on house prices. Our latest forecast suggests a fall of between -2% and -4% in 2024, though it should be noted, as with recent years, forecast uncertainty remains high given the current economic environment.”
