“Partial recovery” expected for 2024 property market

A “partial recovery in market confidence and transaction volumes is expected in 2024 as interest rates ease and affordability improves” according to the Halifax UK Housing Market Review and Outlook for 2024. 

The review was released last week alongside UK Finance predictions for transaction volumes and mortgage lending in 2023/24 and the latest Royal Institute of Chartered Surveyors (RICS) Residential Survey.

Halifax’s Housing Market Review and Outlook for 2024 has identified that

“Higher interest rates, and the resulting squeeze on affordability, gave many potential home buyers pause for thought when considering making a move over the last year. Mortgage approvals were down a quarter across the market, while overall housing transactions were a little under 20% down – both the lowest in at least a decade.”

says Kim Kinnaird, Director at Halifax Mortgages, adding

“As homeowners were hesitant to move, there was a natural reduction in the stock of available properties. Crucially, with unemployment levels only seeing a marginal increase, and many homeowners protected from the immediate impact of rising interest rates by fixed rate deals, there doesn’t appear to have been a spike in the number of ‘forced sales’ – those who feel compelled to sell but would prefer not to, typically triggered by financial pressures.

“We’ve also seen activity among first-time buyers fare relatively well, despite the obvious financial hurdles they face. This could be down to rapidly rising rents – up by over 8% in the year to October. We’ve seen first-time buyers adjusting their expectations to enable them to still get on the property ladder, such as buying smaller properties, to compensate for higher borrowing costs.”

RICS’ latest Residential Report suggests that respondents are heading into 2024 a little more bullish about transaction volumes with the survey suggesting that confidence in the short term is ahead of sentiment heading into 2022, with many respondents expectant of transaction volume increases by the end of 2024.

This is tempered by UK Finance figures which show that transaction volumes will remain relatively stable for 2023 through to 2025 but says that it could be 2025 before we see the the combination of wage growth, softer house prices, inflation and interest rates settling have an impact on transaction volumes. UK Finance figures suggest annual transactions will hover around 1m in each of 2023 (1.03m), 2024 (1m) and 2025 (1.03m); a 15% fall on the average number of pre-covid transactions over 5 years from 2015 to 2019.

Affordability is returning to the market. Halifax’s review suggests that the increase in pay growth, which overtook inflation for the first time in 2 years in October, means the average house price to income ratio is down to its lowest since 2015. And as inflation comes closer to the Bank of England target of 2% there is consensus that interest rates have now peaked and financial institutions are pricing  base rate reductions into their forecasts for 2024; indeed property portal Rightmove’s weekly mortgage tracker has identified that the average 5-year fixed mortgage rate is now 5.07%, down from 5.30% a year ago, with 2 year fixed mortgage rates now 5.48%, down from 5.55% a year ago.

The decision by the Bank of England to hold interest rates last week has further fuelled speculation that rates may have peaked. Kevin Roberts, Managing Director, Legal & General Mortgage Services adds

“(The) decision by the Bank of England to hold rates steady shouldn’t be seen as the sign of a bleak midwinter, but a season ripe with opportunity. As our market steps into a new normal with average rates running in the region of 4-6% – and closer to pre-pandemic averages – it’s likely that we are looking at rates that are here to stay, and which could be worth committing to. Lenders continue to price products competitively, and just this week, the average two- and five-year fixed rates fell to their lowest level for six months.”

Property prices have remained resilient throughout 2023 falling by just -1.0% on an annual basis, to now sit at £283,615. This resilience, which, says Halifax “owes more to the shortage of available properties for sale than strength of demand among buyers” means average house prices end the year just 3% down on August 2022’s peak (£293,025) but £44,000 above pre-pandemic levels.

Commenting, Nathan Emmerson, CEO of Propertymark says,

“With interest rate rises and an inflation increase looking unlikely in the new year, we can start 2024 with a sense of cautious optimism. Though the Halifax and Nationwide reports point to a drop in house prices in the new year, Propertymark hopes that this will help maintain sales volumes and support market confidence whilst we navigate the impact of current interest rates and the rate of inflation. 2024 presents an opportunity for Governments across all nations to focus on incentive and support schemes to get more first-time buyers onto the housing ladder.”  

Summing up, Kinnaird adds

“Overall, with the combination of cost of living pressures and interest rate levels that are still much higher than even two years ago, we will likely see continued mild downward pressure on house prices. Our latest forecast suggests a fall of between -2% and -4% in 2024, though it should be noted, as with recent years, forecast uncertainty remains high given the current economic environment.”

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