The Express spoke to several UK property experts to get their thoughts on where the market is heading.
The UK housing market has experienced a tumultuous year, with soaring mortgage rates and high living costs creating uncertainties for buyers and sellers. However, there may be hope on the horizon as experts predict that 2024 could bring a more reasonable market.
Mortgage interest rates have seen significant increases due to 14 consecutive Base Rate rises. Currently, fixed rates are averaging over 6% while variable rates are around 8.5%, as reported by Uswitch. Additionally, the UK’s Consumer Price Index (CPI) remains high at 6.8%, putting pressure on affordability and household finances.
As a result, demand to buy property has dampened, leading to a drop in house prices. In August, house prices decreased by 5.3% compared to the same month last year, marking the biggest annual fall since 2009, according to Nationwide.
But what does this cool-down mean for the property market in 2024? Express Money spoke to experts to get their forecasts.
Mortgage Rates and Affordability
Kate Steere, deputy editor and mortgage expert at personal finance comparison site finder.com, believes that soaring mortgage rates have cooled the housing market this year. Buyers are remaining cautious and waiting for rates to settle. However, despite lower house prices, affordability will remain an issue in 2024 due to the dramatic increase in mortgage rates over the past 12 months. Monthly repayments are a concern for buyers, even if prices are cheaper.
Steere states that this cautious approach will contribute to the soft demand in the housing market, particularly when compared to the strong market of 2021 and 2022.
Vendor Expectations and Competition
Max Hancock, founder of The Good Homes Project, suggests that this year’s cooling market may have an impact on house prices in 2024. However, vendor expectations are still strong, buoyed by perceived equity growth during the Covid ‘boom’. Hancock predicts that competition at the lower end of the market, such as first-time buyers and those buying properties in the ‘average’ UK house price range, will continue to be strong.
Hancock emphasizes that the sales market may be reverting to a new normal, where properties are priced and sold reasonably, without agents adding exorbitant amounts that may have been acceptable 12 to 18 months ago. He also notes that the upper end of the market could cool off due to reduced competition from those who have already upsized.
Overall, Hancock believes that while average prices may fall over the next 12 months, it will likely be a mean reversion rather than a major change.
Impact of Mortgage Interest Rates
When considering the impact of higher mortgage interest rates on the property market, Hancock suggests that most rate increases have already been absorbed by buyers. Lenders and buyers have factored in the expected increase in rates, resulting in a relatively smooth transition. He believes that general household cost pressures may have some anecdotal impact, but those looking to move seem to be well equipped to do so.
However, Steere points out that further anticipated Bank of England Base Rate hikes may have a knock-on effect on affordability in 2024. Buyers accustomed to lower rates will need to reassess what they can realistically afford, leading to a shift in demand for different types of properties. Detached houses may become less popular as people look for smaller, less expensive places.
Prospects for Mortgage Rate Changes
Regarding the future of mortgage interest rates, Hancock speculates that the Bank of England is likely to raise the Base Rate further at the end of the month, which would increase prices for some mortgage holders. However, recent news about inflation reduction suggests that previous rate increases are working, and another increase would contribute to further reducing inflation.
Hancock believes that markets have already priced in this rate rise, as variable rates will rise alongside any Base Rate increase. Furthermore, there have been lowered rates on SONIA swaps, indicating some optimism that the peak of rate increases may have been reached. Many high street lenders continue to reduce their fixed rates, which is a trend that is expected to continue.
Conclusion
While uncertainties persist in the UK property market, experts believe that 2024 could see a more reasonable market with lower house prices. Affordability will continue to be an issue due to high mortgage rates, but buyers are expected to adapt and reassess their budgets. Vendor expectations remain strong, particularly at the lower end of the market, where competition is expected to continue. The upper end of the market may experience a cooling-off period as demand decreases. Despite some volatility, experts emphasize that the market may be reverting to a new normal, offering reasonably priced properties without excessive markup. Overall, while some challenges remain, the property market in 2024 may present opportunities for potential investors.