After a turbulent 2022/2023, with inflation peaking to a 10-year high and interest rates climbing rapidly for the first time in a number of years, it would have seemed logical that the beginning of 2024 would herald a difficult time for each and every one of us, regardless of whether we have an interest in property or not.
However, with inflation dropping at a faster than expected rate (although there was a slight rise again in December 2023), and the interest base rate now being held steady by the Bank of England, the crisis seems to, if not yet passed, not have been as bad as predictions initially indicated. With many sitting on fixed term mortgages and unemployment levels only seeing a marginal increase, the mass forced sales that some thought might materialise, didn’t.
So, what does this mean for the property market in 2024?
Will the higher base rate (now sitting at 5.25%) mean less interest from potential home buyers or investors, as mortgage rates have risen in tandem with the rate hike, making purchases less affordable and banks a ‘safer’ haven for investors funds?
Will those who are looking a ‘home’ for their money be less cautious than they were throughout 2023?
Or will investors feel that the worst has passed and that it is safe to put their head (or their funds) back above the parapet again?
Well early indications would suggest that there seems to be quite a difference of opinion between many of the main guys in the know: some, such as Lloyds Bank/Halifax and Nationwide are predicting a drop in house prices between 2% – 4%, whilst the revered Knight Frank are predicting a 3% increase! So, why the disparity? Many believe that the Bank of England base rate is not likely to rise again and most would believe that it will instead drop. This will obviously have an impact on mortgages, making homes more affordable once again, which should encourage more movement in the market. Coupled with that is the government's emphasis on more affordable homes and helping first time buyers get a foothold on the property ladder. There has even been suggestions of 99% or No Deposit Mortgages to enable first time buyers to secure their homes. All of these factors could only help bring more buyers into the market increasing demand and most likely pushing house prices up.
However, due to lack of good housing stock and perhaps increased caution from sellers, even though house prices might increase, the volume of sales may remain low.
This then has a knock-on effect on another sector of the property market: rentals. And for 2024, it is predicted that rents will continue to remain high, leaving the buy-to-rent, HMO and serviced accommodation sectors thriving. Good news for landlords, not such good news for tenants! With many smaller BTL landlords exiting the market due to the government's punitive measures introduced to stop rogue landlords, the market is now mostly controlled by the larger, almost conglomerate style landlords. The rental levels are then set at a corporate level with little concern for tenant affordability or wellbeing – the tenants rather than being consumers become commodities. Perhaps if the market steadies, interest rates plateau and lenders start to offer affordable products to the BTL landlords again, then some of the smaller landlords will once again seize the opportunities made available, allowing for more good stock to come to market. And more stock means more choice for tenants, which should inevitably reduce rental prices.
In the short-term, it looks as if the current rental levels will remain high.
Historically, London has always been (and most likely will always be) the number one property spot in the UK. However, during and post COVID, the market there suffered in unexpected ways, causing many to re-evaluate their allegiance to the capital, as a place to live and grow.
With remote work and hybrid working practices becoming more commonplace, many how believe relocation to the city of London does not have to be the only option. This has seen the emergence of strong rental growth in other parts of the UK, including Manchester, Glasgow, Edinburgh, Aberdeen, cities & towns in the East Midlands and the East of England including Cambridge and Norwich. Added to this, Northern Ireland has seen an increase in property prices with a 2.3% rise, somewhat going against the trends towards the end of last year. All-in-all, from evaluation of these statistics, it would give the appearance that things are not as bleak as predicted throughout the greater part of 2023.
Going forward, what are some of the pointers or challenges for 2024?
According to Halifax, pressure on household finances – notably from inflation and higher interest rates – has impacted housing affordability, leading to fewer completions. However, a partial recovery in market confidence and transaction volumes is expected in 2024 as interest rates ease and affordability improve.
From Knight Frank, they now expect UK mainstream prices to rise by 3% in 2024, compared to a decline of 4% predicted in October. With low-level single-digit growth in subsequent years, they expect cumulative growth of 20.5% in the five years to 2028.
Rightmove are holding steady with their evaluation that the housing market is continuing to return to more normal levels of activity following the frenetic post-pandemic period. Next year, they predict that average new seller asking prices will be 1% lower nationally by the end of 2024, as competition increases among sellers to find a buyer.
The Times Money Mentor is suggesting that 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.
This mixed bag of opinions is likely adding to the confusion within the market and it is difficult to make a definitive assessment of where house prices will move to by the end of the year and how this will impact other sectors of the housing market. However, the general consensus would seem to suggest that if there is a dip in house prices, it will not be extensive (likely not more than 3%).
Barring more economic crises, fuelled by unrest in various part of the globe and energy/environmental issues, it would seem that after the very gloomy outlook throughout 2023 that the sun is finally breaking through the clouds, with the pathway ahead not seeming quick as dark.
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