The recent trends in the UK housing market offer a glimmer of steadiness as we near the end of the year, pointing to a potential stabilisation in the previously declining house prices.

Surveyors have taken note of a slight but significant change in the housing market. Although a majority of property professionals, at 63%, observed a decrease in house prices in October, this is a modest improvement from September’s 67%. The Royal Institution of Chartered Surveyors (RICS) has indicated that while the decline in house prices is evident across many UK regions, the intensity of this downward trend seems to be losing its momentum.

Contextualising the House Price Dynamics

This update arrives on the heels of a report from Halifax, which revealed a roughly 4% drop in British house prices since mid-last year. The Bank of England has been proactive in its response to inflation, having raised interest rates 14 times from December 2021 to August 2023, reaching a 15-year peak at 5.25%. These measures, aimed at controlling inflation—which currently stands at a substantial 6.7%—mean that mortgage affordability will likely remain a challenge for some time.

Short-Term Expectations and Long-Term Predictions

The immediate future seems to follow the trend of the recent past, with RICS predicting a continued decline in sales volumes over the next three months. However, there’s a silver lining: the year ahead is forecasted to bring stabilization in sales volumes. Despite recent challenges, house prices are still holding strong at approximately 18% higher than pre-pandemic levels, buoyed by the previous era’s ultra-low interest rates and a shift in living space preferences.

Rental Market Outlook

The rental sector is facing its own set of challenges and changes. An anticipated 4% increase in rents over the next year is in sight, exacerbated by a dip in the number of landlords entering the market. This scarcity in supply, coupled with enduring tenant demand—albeit at its slowest increase since early 2021—points to upward pressure on rental prices.

Expert Insights

Tom Bill, a leading voice in UK residential research, offers a nuanced perspective on the slowdown. He suggests that the market is experiencing a significant drop in transactions rather than a steep fall in house prices. A variety of factors, including rising mortgage rates, political uncertainties, global conflicts, and financial market predictions, are contributing to a cautious approach from both buyers and sellers.

Bill also touches on the rental market, highlighting the negative impact of increased taxes and regulations on landlords, which in turn, has inadvertently placed financial strain on tenants.

The Takeaway for Potential Investors

For those considering property investment, the current climate presents both challenges and opportunities. As mortgage rates may remain high, affordability is key. On the other hand, the potential stabilization of the market could offer more predictable conditions for long-term investments.