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UK housing market review and outlook for 2024




·  The average UK house price is now £283,615 compared to £286,328 a year ago, a fall of £2,713.

·  Annual house price growth is -1.0% (year to November). During 2023 it was as high as +2.1% (January and February) and as low as -4.5% (August and September).

·  Average property prices are £44,439 (+18.6%) higher than at the onset of the pandemic (£239,176 in March 2020).

·  Property prices for homes bought by first-time buyers recorded slight growth (+0.5%) over the last year, while the amount paid by home-movers fell by -1.7%.

·  The all-time record high UK average property price was set in August 2022 (£293,025).

·   The typical UK house price has increased by +59% over the last decade (£178,501 in November 2013), a rise of £105,114.

 


Against a backdrop of higher borrowing costs and wider financial uncertainty, 2023 was a year when many homebuyers took stock of their situation instead of taking action. HM Revenue & Customs (HMRC) data shows the number of residential property transactions completed in the first 10 months of 2023 was the lowest in a decade, excluding the pandemic-affected year of 2020. 

Last report from HMRC the provisional non-seasonally adjusted estimate of the number of UK residential transactions in November 2023 is 87,640; 22% lower than November 2022 and 2% lower than October 2023

Residential transactions fell for the third consecutive month in November, with seasonally and non-seasonally adjusted transactions down by 1% and 2% respectively. In contrast, non-seasonally adjusted non-residential transactions rose by 4% relative to October 2023, with seasonally adjusted figures up by 3%. While non-seasonally adjusted residential transactions have fallen by 22% since November 2022, the non-residential sector has remained more stable, with a less than 1% increase in transactions over the last 12 months.

Generally, mortgage rates have been falling back since the end of July, yet they remain notably higher than what borrowers have become used to over the past 15 years. Combined with the cost of living crisis, many would-be homebuyers and movers have either been unable to afford the mortgage they need or are reluctant to make their move. 

 

UK house prices will fall by up to 4% next year as high interest rates continue to affect mortgage affordability and sales completions, according to Halifax.

Britain’s biggest mortgage lender said the price of an average UK property would fall by between 2% and 4% but it expected a part-recovery in the market as interest and mortgage rates eased next year. Halifax said house prices were a “mixed picture” across the UK, with areas such as the south-east of England down 5.7%, while in Northern Ireland they were up 2.3%.

“Overall, with the combination of cost of living pressures and interest rate levels that are still much higher a year ago, we will likely see continued mild downward pressure on house prices,” said Kim Kinnaird, the director of Halifax Mortgages.

 

A separate forecast by Nationwide was slightly more upbeat about prospects for 2024. The UK’s biggest building society said it expected UK house prices to similarly suffer a “low single digit decline” but added that they could remain “broadly flat”.

Rightmove’s expert Tim Bannister says: “It’s likely to be another muted year for the market, however the better than anticipated activity this year has shown that many buyers are still getting on with satisfying their housing needs. We predict a modest average 1% fall in new seller asking prices in 2024. The underlying level of good demand at the right price makes it unlikely that we will see a more significant drop in prices next year.” Do not forget this is new instruction only and asking price NOT agreed sold prices.

The housing market is made up of thousands of local markets, each with their own unique dynamic of supply and demand. The predicted fall in new seller asking prices will be felt more keenly in some areas of Great Britain than others. In areas with fewer homes for sale, we may see new seller asking prices remain flat, or even very slightly increase compared to this year. “In areas where sellers are struggling to attract affordability-stretched buyers, or needing to sell quickly due to a change of circumstance, new job opportunity, or strong desire for a lifestyle change, we are likely to see even more competitive pricing,” says Tim Bannister.


HomeOwners Alliance CEO Paula Higgins says, ‘Looking back to this time last year, predictions of a house price crash were being bandied about. But as the figures show – this didn’t happen in 2023.

‘Considering the difficult factors homeowners face, from increased mortgage costs and the cost of living crisis, it seems sensible to assume house prices will drop further in 2024. But after so many years of house price inflation, we think this is more likely to be a correction than a crash.

Zoopla expect to see the usual seasonal rebound in demand next spring as pent-up demand returns to the market.

However, the number of sales taking place is set to be lower than spring this year. 

General Elections also tend to create a pause in activity, which is why we expect another year with 1m home moves in 2024. 

If mortgage rates fall back to 4% more quickly, the number of sales set to take place would improve. Buyers are currently hesitant to move amid the uncertainty over house price falls and higher mortgage rates. This is particularly the case with upsizers looking to secure larger family homes.

Our recent consumer survey reveals parts of the population are still keen to move, but many are hoping and/or waiting for mortgage rates to get lower again before they do”. 

 

Just under 90,000 homes started construction in H1 2023, up 8% from the previous year. This indicates an improving short-term supply outlook of new home completions in 2024, albeit this is still significantly below the estimated requirement. However, the housebuilding sector will continue to be hindered by several challenges, which will impact the future pipeline of new homes in 2024. Planning remains a key challenge. New fire safety regulations are a necessity but will nevertheless stall planning activity throughout the year. In addition, the lack of local development plans mean councils will continue to be saturated with speculative planning applications. This will consume limited resources and contribute to delays. In London for example, it took an average of almost 18 months for a planning application to be granted permission in 2023, up from just over six months a decade ago. This has contributed to new home permissions falling almost 60% across the capital in 2023.

The higher cost of debt and construction will also continue to impact viability. Almost two-thirds of respondents to the RICS Construction Survey now cite ‘financial constraints’ as a key factor limiting activity. This has risen consistently since the start of 2022. However, the pace of cost inflation should fall back in 2024, providing an element of stability. We forecast materials price inflation to average 3% in 2024, down from a peak of 23% in 2022. This will drive the overall rate of construction cost inflation down to an average of 2% in 2024, compared with the 2022 peak of 10%. Overall, the delivery of new homes may surpass 2023, but some key challenges will continue to impact the future planning pipeline throughout 2024. See CBRE report here.


My prediction for 2024 would be no growth (0%) in residential property market.

It is important to make the distinction between a cooling in property prices and a wholesale property crash. Main reason why properties have not dropped more is lack of supply of properties in UK. Many experts are predicting house prices will experience a drop in 2024, however, estimates for the scale of this drop are relatively conservative. Mortgage rates on fixed rate mortgages have been falling for several months thanks to better than expected inflation data and the widely held expectation that interest rates have now peaked at 5.25%, following the Bank of England’s (“BoE”) decision to hold the base rate for the third time in  December 2023. The most important factors will be inflation (currently 3.9%) target BoE is 2% and when will BoE decrease interest rate first time in 2024. Geopolitical situations will by critical too in terms of inflation stability, Election, people’s sentiment and also unemployment data.

 

(Bespoke Property Consultant)

 

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