Last updated: Nov 15, 2023

Will house prices fall in 2024?

at Mortgages for Doctors

Will house prices fall in 2024?

The uncertainty surrounding the UK property market has become a hot topic as we approach the end of 2023.

With conflicting reports from various sources, it's challenging to discern the true trajectory of house prices in the coming months. Lloyds Bank and property website Zoopla are forecasting further declines into 2024, but Nationwide's recent report suggests a small uptick in October.

In this article, we delve into the current state of the market, exploring the factors contributing to the fluctuating landscape.

The current downturn

The evidence of the UK property market's struggles is becoming increasingly apparent.

Nationwide reported a 3.3% drop in average house prices in the year to October, following a 5.3% decline in the year to September. Rightmove added to the narrative, noting a 17% drop in the number of property sales agreed in October compared to the previous year.

So, why the downturn? Rising mortgage rates are a significant culprit. The current average mortgage rate is around 5.43%, up from around 2.3% in 2021. This has impacted demand, leading sellers to slash prices to secure a sale.

Why are house prices so high?

To understand the current situation, it's crucial to consider the historical context. House prices in the UK have risen significantly over the years, nearly tripling since the turn of the century and increasing by over 60% in the last decade. Contributing factors include a shortage of housing stock, high demand, and historically low interest rates since the financial crash.

The average price of a UK home has been on an upward trajectory due to cheap borrowing. However, the landscape has shifted since December 2021, with the Bank of England raising the base interest rate 14 times, bringing it to 5.25%. As a result, mortgage rates have shot up, contributing to the current challenges.

What will happen in 2024?

While the future remains uncertain, the recent surge in mortgage rates and the cost-of-living crisis have raised concerns about a potential market crash.

Lloyds Bank predicts a 4.7% fall in average property prices over 2023, with a further 2.4% decrease anticipated in 2024. However, Zoopla offers a more conservative estimate, suggesting a 2% decline in 2024.

The Bank of England's decision to keep the base rate at 5.25% in its latest meeting indicates a possibility of interest rates falling sooner than expected. This potential reduction could make buying a home more affordable and reverse the current downward pressure on property prices.

How will mortgage rates affect house prices?

Higher mortgage rates are amplifying the cost of homeownership, making it more expensive for buyers. The financial strain on potential buyers is forcing sellers to reassess their asking prices to facilitate sales.

The future trajectory of house prices depends on various factors, including potential further rate rises, the lingering cost-of-living crisis, and the behaviour of first-time buyers. The Resolution Foundation suggests that if interest rates remain high, average house prices could plummet by 25%.

In conclusion, while the property market is facing challenges, predicting a crash is complex. Demand still outstrips supply in many areas, wages are rising faster than inflation, and there's potential for mortgage rates to fall. The road ahead may be bumpy, but a gradual decline rather than a precipitous crash seems to be the consensus among experts.

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