Between high inflation, 15 year high-high mortgage rates and limited housing stock, 2023 has been an interesting year in property to say the very least. However, most analysts now agree that the UK property market has shown greater resilience than expected, prompting more optimism over how 2024 might look for homeowners.
The Bank of England (BoE) announced in December 2023 that it was holding its Base Rate at 5.25%. This was the third consecutive hold after a spate of 14 rate increases during the previous months.
Various factors including everything from the COVID-19 pandemic, the war in Ukraine and a ‘revolving door’ of Prime Ministers have led to higher-than-normal levels of inflation, which has meant that the BoE has had to make difficult decisions to balance keeping inflation down and protecting the wider economy.
For much of 2023, the BoE has increased base rates in an effort to limit consumer spending to decrease demand and therefore reduce inflation.
As we approach the end of 2023, the Bank’s plan appears to be working – albeit not as quickly as some had hoped. Inflation hit 5.2% in November 2023, far higher than the Government’s target of 2%, but significantly lower than the 10% highs of the beginning of the year.
Still, the welcome fall in inflation has seen mortgage rates begin to come down to sub 5% after a massive rise. This has been of immediate relief to homeowners on variable rate and tracker mortgages, who have seen big increases in their mortgage repayments throughout 2023.
It is also welcome news for homeowners whose fixed-rate mortgages are due to expire soon or buyers looking to secure a mortgage on a new home. Rates will still be higher than they have been in recent years, but it appears that the peak of spiralling mortgage rates has passed.
If you are looking to buy a property in the new year, or have a mortgage that is set to expire soon, now is the time to speak with a mortgage advisor.
The current performance of the housing market is something of a mixed bag for sellers too. Data from the Office for National Statistics (ONS) House Price Index (HPI) suggests that house prices have fallen by 1.2% year-on-year as of October 2023. Its figures take into account all agreed sales including cash buyers, so gives a relatively good indication of how property prices are performing.
Data from Nationwide shows a decrease in house prices of 2% in the year to November while Halifax shows a drop of 1% during the same period. While falling house prices might appear to paint a bleak picture, it should be noted that Lloyds Bank had previously predicted a drop of 4.7% in property prices during 2023.
The reality for both buyers and sellers is that the property market is certainly more challenging than it has been in previous years, but it has also shown significantly more resilience than some had anticipated.
Most lenders and analysts agree that house prices will continue to fall during early 2024, but there is some disagreement as to just how much. Headline-grabbing figures from Finder.com, suggest that 74% of experts think that house prices will fall between 5% and 10% by Autumn 2024 – but will this really happen?
Thankfully, almost certainly not.
According to Finder.com’s own data, only 18% of their experts think that house prices will fall by as much as 5%-10%, while the largest segment of panellists (55%) believe that a drop of between 5% and 7.5% is more likely.
This is closer, but still somewhat higher than what many leading lenders think might happen to house prices next year. Lloyds Bank, the UK’s largest lender, has said that it expects average property prices to fall by 2.4% during 2024.
Estate agents Savills and Knight Frank expect house prices to fall by 3% and 4% respectively throughout 2024, while the property website Zoopla forecasts a decrease of just 2%.
With all of this data in mind, it is reasonable to assume that the property market will continue to face challenges in 2024, but it’s highly unlikely that the UK will see a housing crash.
It’s a fact that the property market has been tough during 2023. Data from Gov.uk shows that during the financial year 2022 to 2023, residential property sales dropped by around 11% on the previous financial year, from 1,166,510 to 1,034,020.
Non-residential sales were less impacted but still dropped from 106,450 in the 2021-2022 financial year to 105,570 transactions during the 2022-2023 financial year.
As of late 2023, the UK property market is beginning to recover from the disruption caused by the COVID-19 pandemic and a myriad of other factors, but higher interest rates are expected to be the new normal for some time to come.
Although average mortgage rates of between 5% and 6% are well up on the low rates that were available during the 2010s, it should be noted that according to Mortgagable, mortgage rates across the UK between 1995 and 2022 averaged 5.62%.
This means buyers are facing a market with less attractive mortgage deals than were available a few years ago, but that are still well within historical averages. Furthermore, The Bank of England’s recent decision to hold its Base Rate at 5.25% has caused mortgage rates to fall slightly, which could see renewed interest from buyers.
The overall picture for the UK property market going into 2024 is likely one of cautious optimism for both buyers and sellers. House prices are lower than previous years, but nowhere near as much as some pundits had expected and conditions for homebuyers are harder than 2-3 years ago – but not desperately so.
One area that has shown extremely robust growth during the current challenging financial period has been the UK’s property auction market.
Essential Information Group (EIG) Director, David Sandeman recently reported an 8.7% rise in the total number of lots offered at auction during October 2023, coupled with a similar increase of 7.8% in the total number of lots sold.
Edward Mellor’s own Head of Residential and Commercial Property Auction, Louise Buttery, echoed these sentiments noting that “The market is definitely more buoyant than it has been in the last few weeks but here in Auction we are busier than ever and looking forward to a busy 2024. With the market bouncing back we will be working with our loyal vendors and buyers to secure lots more deals!”
The continued growth in the UK property auction market is likely being driven by several factors – including relative ease of selling at auction compared to more traditional methods.
This is arguably something that has become increasingly appealing to landlords who are looking to divest some or all of their property portfolios in response to higher mortgage repayments. Indeed, it is not uncommon to see residential or even business properties sold off at auction with tenants in situ as an ongoing concern.
As the market begins to stabilise, landing the right property at auction could be a great investment for savvy buyers, so you can rest assured that we’ll be keeping a close eye on the auction market during 2024!
Both landlords and tenants have been hit hard by the rise in interest rates during the past few years. Tenants have felt the joint pains of increasing cost of living expenses and climbing rents, as landlords try to cover the cost of increasing mortgage rates.
A report from Simply Business suggests that 25% of landlords are planning to sell a property during 2024. Many are concerned with future rental reforms coming into law in addition to rising costs.
Fortunately, the recent decrease in mortgage rates could help to keep rental properties viable for landlords and keep rents down for tenants. The continued rise in auction sales seems to suggest that while some landlords are looking for ways out of the market, others are expanding their portfolios or even investing for the first time. It’s a unique state of affairs where the key to a healthy return seems to be a combination of timing and longer-term thinking.
Zoopla suggests that demand for rental homes is down 11% on last year, but still a third higher than the five-year average. Furthermore, Savills forecasts rental market growth of six per cent in 2024, down from the 9.5 percent recorded in 2023, with an ‘affordability ceiling’ impacting rent increases 2025.
A reduction in capital gains tax allowance in April 2024 from £6,000 to £3,000 could help to convince more landlords to keep their portfolios going after a challenging year, but all eyes will certainly remain on interest rates throughout 2024.
It’s tempting to think about all the challenges facing the UK property market and despair at all ‘doom and gloom’ reporting out there. It’s undeniable that the market has been hit with a variety of challenges in recent years, but it’s important to keep some perspective.
Some pundits have previously suggested a housing crash in 2023, while others are still creating eye-catching, but somewhat misleading, headlines for what could happen in 2024. The truth is that while mortgage rates are higher than we’ve been used to, they are still well within historical averages.
House prices are down, but nowhere by nowhere near as much as some had expected and while sales are down – property is still selling. The demand is there.
A lot will depend on the BoE’s plan to lower inflation and whether it can continue to edge toward its target of 2%. There’s little doubt that it will take time to hit that target, but even positive moves in that direction have recently seen mortgage rates come down and help to energise the housing market.
We live in interesting times, but as has always been the case, how you decide to move forward will depend on your personal circumstances and how much you are willing to compromise. For some, buying a less expensive property on a smaller mortgage is more preferable to waiting to see if the market improves over the coming months.
Some landlords will be able to weather lower yields as their overall investments are still profitable, while others will need to consider their options and decide whether they are best placed to stick or sell.
Arguably timing is more important in the property market than it has ever been, so getting the best advice will go a long way toward getting you the best deal regardless of whether you are buying, selling, renting or letting.
Whatever your financial or property needs, Edward Mellor has 40 years of experience as leading property experts. We’re ready and waiting to hear from you to help you along your property journey throughout 2024 and beyond.
Contact us today – and let’s get you moving!
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