After a challenging 2023 with falling house prices, Knight Frank, a global property consultancy, has some unexpected news. They’re revising their predictions for the UK housing market, now expecting a 3% rise in house prices for 2024. This is a significant turnaround from their earlier forecast of a 4% drop. What’s driving this change? A combination of mortgage price wars and the likelihood of the Bank of England slashing interest rates.
Mortgage Pricing Wars and Interest Rate Cuts
The property market is getting a boost thanks to these two key factors:
- Mortgage Pricing Wars: Competition among lenders is heating up, making mortgages more accessible and affordable. This leads to more people being able to buy homes.
- Interest Rate Cuts: There’s a growing expectation that the Bank of England will cut interest rates. This makes borrowing cheaper, encouraging more people to buy homes.
Record-Breaking Trends and Buyer Confidence
According to Rightmove, a leading online property website, there’s been a noticeable jump in asking prices. They’ve seen an average increase of 1.3%, or £4,571, between December and January. This is the biggest rise for this time of year since pre-pandemic times.
Increasing Buyer Demand
Even though prices are still 0.7% lower than last year, the market is showing promising signs. There’s a 15% increase in new properties being listed, and buyer demand is growing. Early January saw a 20% rise in sales compared to the same time last year, indicating a resurgence of confidence in the market.
Mortgage Pre-Approvals Hit Record Numbers
Since Christmas, Rightmove has experienced some of its busiest days ever for mortgage pre-approvals. This is a strong indicator that more people are exploring their options to buy homes.
Shifting Predictions
Initially, banks, building societies, and estate agents predicted a downturn in house prices for 2024. However, the last three months have seen unexpected monthly rises, coupled with a significant drop in the UK’s official inflation rate. This has led experts to reconsider their forecasts.
Affordability Concerns Persist
Despite these positive trends, the housing market remains out of reach for many. Comments by NatWest chair Howard Davies, suggesting that getting on the housing ladder is “not that difficult,” have sparked widespread criticism. However, mortgage deals have become slightly more affordable, with a five-year fixed-rate mortgage now averaging 4.86%, down from 6.11% in July 2023.
Experts’ View
Tom Bill, head of UK residential research at Knight Frank, notes that the outlook has improved significantly over the past three months. He highlights that the best five-year fixed-rate mortgage is now under 4%. Data from Halifax and Nationwide also suggests that the market is recovering, with both reporting less severe declines than expected.
The Impact of a Mortgage Bidding War
A bidding war among high street lenders to offer better mortgage deals has emerged, anticipating Bank of England rate cuts. Financial markets expect borrowing costs to drop from the current rate of 5.25% to below 4% by the end of 2024, making home loans more affordable.
Political Implications
This improvement in the housing market could play well for Prime Minister Rishi Sunak in an election year. However, many homeowners are bracing for higher monthly mortgage repayments as they come off cheaper deals. The Resolution Foundation warns of a potential increase in annual housing costs of about £1,800 for a typical family, as 1.5 million households will transition from cheaper mortgage deals in 2024.
International Factors and Inflation Risks
Knight Frank cautions that inflation could remain high, particularly with recent disruptions in international shipping in the Red Sea. This has led to a spike in freight costs and global oil prices, which could impact the UK economy. The ongoing conflict in the Red Sea poses a risk for higher UK inflation, adding another layer of uncertainty to the housing market.
Key Takeaways for Homebuyers and Homeowners
- Rising House Prices: After a dip in 2023, house prices are set to rise by 3% in 2024.
- Affordability Issues: Despite cheaper mortgage deals, housing remains unaffordable for many.
- Mortgage Market Dynamics: A bidding war among lenders and potential interest rate cuts by the Bank of England are making mortgages more accessible.
- Political and Global Influences: The housing market’s recovery could influence political dynamics in an election year, but global issues like the Red Sea conflict could impact inflation and affordability.
Conclusion
The UK housing market is showing signs of recovery, defying previous predictions of a downturn. While this brings hope for some, it also highlights the continuing challenges of affordability and the impact of global events on the UK economy. For those looking to enter the housing market or facing mortgage renewals, it’s a time of cautious optimism and close attention to both domestic and international developments.