Nationwide has reported positive annual house price growth for the first time in over a year, with the average cost of a property rising by 1.2% in the year to February. We explore whether this trend is likely to continue over the rest of 2024.
Nationwide also said that house prices rose by 0.7% month-on-month. Other sources have reported recent signs of recovery in the property market; Halifax said average house prices rose 1.3% in the month to January and grew 2.5% annually, the highest annual growth rate it had seen in a year.
While data from Zoopla shows that prices fell by 0.5 per cent in the 12 months to the end of January, it reported a 11% increase in buyer demand and a 21% increase in supply of homes, due to higher seller confidence within the market.
Mortgage rates have also fallen significantly from their summer highs. Inflation is also well below its October 2022 peak, meaning less pressure is on household finances. Some experts are forecasting house prices to rise in 2024, but there are several factors that could mean it’s not so straightforward.
In this article, we explain:
Read more: Will UK mortgage rates go down in 2024?
Are house prices going down?
Generally, house prices and the number of sales fell slightly over 2023. This was attributed to a mixture of high mortgage rates, cost of living pressures and low market confidence. But we’re seeing signs of recovery.
According to Nationwide, UK house prices rose 1.2% in the year to February, and 0.7% compared to the previous month, taking the average house price to £260,420. Property website Rightmove reported a 0.9% rise in average asking prices in the month to February, with agreed sales in the first six weeks of the year 16% higher than over the same period in 2023.
The latest uptick in house prices has been attributed to lower mortgage costs, with many lenders slashing rates in recent months. The average two-year fixed rate is now 5.76%, significantly lower than July 2023’s peak of 6.86%.
“The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market. Indeed, industry data sources point to a noticeable increase in mortgage applications at the start of the year, while surveyors also reported a rise in new buyer enquiries,” explains Nationwide’s Mike Pitcher.
However, February saw mortgage rates increase slightly. The average two-year fixed rate rose from approximately 5.4% to over 5.7%. This is likely to be due to inflation staying fairly level in recent months – find out more. It’s possible that this means that the current upward trend in house prices is therefore temporary.
“The momentum of lower mortgage rates in January can only carry us so far,” said Sarah Coles of investment firm Hargreaves Lansdown. “[February’s rise in mortgage rates] isn’t a dramatic movement, but the direction of travel is important. If rates keep drifting up, we could see buyers hit pause.
“As average house prices rise back over £260,000 it raises another problem, because higher house prices, coupled with rising mortgage rates, risk pushing property out of reach for buyers again. Already at the end of 2023, the average ratio of house prices to earnings was 5.2 – compared to the long run average of 3.9, and if pay rises don’t keep pace with price rises this could get worse.”
First-time buyers should also temper their excitement when it comes to falling prices. Despite recent trends, house prices are still significantly higher than they were before the onset of the pandemic. In February 2020, the average home cost £230,609, according to the UK House Price Index – that’s approximately £70,000 less than today.
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Will house prices crash in 2024?
While the property market has recovered slightly so far in 2024, it’s tough to know what the future holds.
Analysts cite lower mortgage rates as a key reason for the latest spike in house prices, but February saw rates actually increase slightly. They remain not far from their highest level in 16 years, and we’re still in a cost of living crunch with frozen tax thresholds putting pressure on household budgets.
“After falling sharply in late December, swap rates, which underpin fixed rate mortgage pricing, have drifted back up,” says Pitcher.
“Borrowing costs remain well below the highs recorded last summer but, if the recent upward trend is sustained, it threatens to restrain the pace of any housing market recovery.
“While the squeeze on household budgets is easing, with wage growth now outstripping inflation by a healthy margin, it will take time to make up for the ground lost over the past few years, especially given consumer confidence remains fragile.”
House price predictions
Here are several predictions for how house prices will change in 2024:
- Property website Rightmove anticipates a modest 1% fall in house prices by the end of 2024.
- Property website Zoopla is also conservative with its forecast, estimating that house prices will fall by just 2% this year
- Estate agent Savills predicts that UK property prices will fall by 3% in 2024, before recovering in 2025 and rising by 3.5%
- Lloyds Bank has forecast a further 2.4% decrease in house prices over 2024. It expects prices to then recover slightly in 2025
- Global property consultancy Knight Frank expects house prices to rise by 3% this year, rather than a fall 4% as it previously forecast
Interest rates may begin to fall soon, which could drive house prices up
In its latest meeting, the Bank of England again voted to hold the base rate at its current level of 5.25%. Despite staying level in the latest figures, inflation has fallen faster than predicted, which could mean that cuts to the base rate could follow soon after.
“We expect mortgage rates to fall slowly in the coming months,” said Zoopla. “Once they get below 4.5%, we’ll see more buyers return to the housing market.”
A host of lenders have slashed their mortgage rates since the start of 2024, with some fixed deals available that are below 4%. However, these deals tend to be for borrowers with the largest deposits. The average two-year fixed-rate mortgage is now over 5.5%.
Even if mortgage rates stay as high as they are at the moment, it’s unlikely that property prices will crash.
“Based on our current economic assumptions, we anticipate a gradual rather than a precipitous decline [in house prices],” said Kim Kinnaird, a mortgage director at Halifax.
Demand still tends to outstrip supply of homes in many areas across the UK. Wages are still rising even faster than inflation putting homeowners in a better financial position while falling mortgage rates are enticing buyers to return to the market. In this scenario, prices could actually rise rather than crash.
Why are house prices so high?
Despite recent house price falls, they are still high by historical standards and have been rising much faster than wages.
The average price of a UK home has nearly trebled since the turn of the century and increased by more than 60% over the last decade according to Nationwide building society.
In 1999, you could expect to buy a median house in England for 4.4 times the median income. By 2022, that had doubled to more than 8 times the median income.
A shortage of housing stock and high demand for properties has certainly inflated prices. But a significant factor has been the low interest rates since the financial crash.
People were more able to afford mortgages because borrowing money was cheap. This is no longer the case.
Bank of England has increased the base rate 14 times from its record low of 0.1% in December 2021. The base interest rate now sits at 5.25%, where it has been held since the summer. As a result average mortgage rates shot up from around 2.3% for a two year fix at the end of 2021 to around 5.75% now. They reached over 6.85% in summer 2023.
You can read more about why the central bank has been raising rates.
How are mortgage rates affecting house prices?
Higher mortgage rates have made it more expensive to get a loan to buy a home. The extra financial pressure on buyers has been forcing sellers to re-evaluate their asking prices if they want to make a sale.
There are a number of factors that could cause house prices to fall:
- The Bank of England hasn’t ruled out further rate rises despite market expectations
- While inflation has fallen significantly, the cost of living crisis is still putting pressure on household budgets
- First-time buyers especially could hold off as they wait to see what happens
The Royal Institution of Chartered Surveyors’ (Rics) December 2023 UK Residential Market Survey reported a downturn in buyer demand, but highlighted that this marked the “least downbeat reading since April 2022”.
The Resolution Foundation think tank has said that if interest rates remain at the current high level then average house prices could plunge by 25%. This would take the average house price from £285,000 today to nearer £215,000.
While the Bank of England has held the base interest rate since August, economists believe that the next movement will be downwards, perhaps as early as May.
The Resolution Foundation believes the adverse effects of the successive rate rises have yet to be fully felt, particularly by mortgage holders whose fixed-term deals come to an end over the coming months.
All eyes are on mortgage rates; how they change will have a significant impact on house prices. They’ve spiked recently, but given the overall fall in mortgage rates since summer 2023, demand for homes may rise and property prices may not sink this year after all.
Read more: Is now a good time to buy a house?
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What are the regional variations in house prices?
There are differences in house price movement depending on where you live within the UK, according to the latest ONS figures for the year to November 2023:
- North East: -0.4%
- Yorkshire and the Humber: -0.8%
- North West: -2%
- South East: -2.3%
- East Midlands: -3%
- East: -3.3%
- West Midlands: -3.4%
- South West: -4.1%
- London: -6%
London’s house prices remain the most expensive in the UK at £505,000 in November down from £516,000 the previous month.
By contrast, the northeast has the lowest average house price of all English regions at £160,000.
Average annual house prices to November 2023 decreased in England to £302,000 (-2.9%) and in Wales to £213,000 (-2.4%), but increased in Scotland to £194,000 (2.2%).
House price figures in Northern Ireland are released every three months, with the next data set out in February.
How do prices differ for different types of property?
The pandemic saw our housing preferences shift away from flats to detached, family homes with gardens and a space for a home office. Mortgage lenders have continued to see differences in price trends between property types.
Figures from Nationwide Building Society of average asking prices between 2020 and 2022 showed:
- A detached property increased by 26%, or nearly £78,000
- Flats increased by 13.4% on average, or £23,000
According to the latest ONS statistics, other property types fell in price, with terraces down 3.8%.
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