The latest official figures show house prices are still down year-on-year, but signs of a recent resurgence mean that might not last long. We explore whether this trend is likely to continue over the rest of 2024.
The Land Registry has reported that house prices rose 0.5% between December and January, but were still down 0.6% compared to the year before. But the official figures generally lag behind the latest market moves, and those are far more positive.
Looking at what’s being listed for sale now, Rightmove found that the average price of newly marketed properties rose by 1.5% in March.
Tim Bannister from Rightmove said: “March is typically a strong month for asking price growth, as both buyer and seller activity levels rise and the spring selling season gets underway.
“However, the stronger than usual price growth this March indicates that new sellers are feeling much more confident, with some perhaps being over-optimistic, that there is enough buyer activity and affordability in their local market to achieve a higher price.”
Of course, “for sale” and “sold” prices can be quite different, and not everything is positive.
Mortgage rates are still far above where they were two years ago, inflation is still above the Bank of England’s target and April’s bill hikes are having an impact.
In this article, we explain:
- Are house prices going down?
- Will house prices crash in 2024?
- Why are house prices so high?
- What are the current house price predictions?
Read more: Will UK mortgage rates go down in 2024?
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Are house prices going down?
Generally, house prices and the number of sales fell slightly over 2023. This was attributed to a mixture of high mortgage rates, cost of living pressures and low market confidence. But we’re seeing signs of recovery.
In January HM Land Registry reported sold prices were 0.6% lower than the year before.
But since then there’s been an upturn in house prices.
“The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market. Indeed, industry data sources point to a noticeable increase in mortgage applications at the start of the year, while surveyors also reported a rise in new buyer enquiries,” said Mike Pitcher from Nationwide.
However, continuing high mortgage rates and other economic uncertainty has hit that optimism.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “We can’t be certain how the property market will deal with the weakness we’re expecting to creep into the jobs market, and while we’re out of a recession, we can’t make any bold assumptions about economic growth. It means that while it may be a tempting time to get back into the property market, it will be essential not to over-stretch yourself.”
First-time buyers should also temper their excitement when it comes to falling prices. Despite recent trends, house prices are still significantly higher than they were before the onset of the pandemic. In February 2020, the average home cost £230,609, according to the UK House Price Index – that’s approximately £70,000 less than today.
Coles added: “It’s always tempting to throw everything you have into buying a house, but buyers would be wise to hold back a little. You still need an emergency savings safety net to fall back on in tougher times. At the moment, you can make more than 5% in an account with a newer bank, building society or savings platform, so you can make a decent interest rate into the bargain.”
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Will house prices crash in 2024?
While the property market has recovered slightly so far in 2024, it’s tough to know what the future holds.
Analysts cite lower mortgage rates as a key reason for the latest spike in house prices, although February saw rates actually increase slightly. They remain not far from their highest level in 16 years, and we’re still in a cost of living crunch with frozen tax thresholds putting pressure on household budgets.
“After falling sharply in late December, swap rates, which underpin fixed rate mortgage pricing, drifted back up,” said Pitcher.
“While the squeeze on household budgets is easing, with wage growth now outstripping inflation by a healthy margin, it will take time to make up for the ground lost over the past few years, especially given consumer confidence remains fragile.”
House price predictions
Here are several predictions for how house prices will change in 2024:
- Property website Rightmove anticipates a modest 1% fall in house prices by the end of 2024.
- Property website Zoopla is also conservative with its forecast, estimating that house prices will fall by just 2% this year
- Estate agent Savills predicts that UK property prices will fall by 3% in 2024, before recovering in 2025 and rising by 3.5%
- Lloyds Bank has forecast a further 2.4% decrease in house prices over 2024. It expects prices to then recover slightly in 2025
- Global property consultancy Knight Frank expects house prices to rise by 3% this year, rather than a fall 4% as it previously forecast
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Interest rates have begun to fall, which could drive house prices up
In its latest meeting, the Bank of England again voted to cut the base rate from 5.25% to 5%. Inflation has also fallen to the central bank’s target of 2%, which could mean that further cuts to the base rate could follow.
“We expect mortgage rates to fall slowly in the coming months,” said Zoopla. “Once they get below 4.5%, we’ll see more buyers return to the housing market.”
A host of lenders have slashed their mortgage rates since the start of 2024, with some fixed deals available that are around 4%. However, these deals tend to be for borrowers with the largest deposits. The average two-year fixed-rate mortgage is now over 5.4%.
Even if mortgage rates stay as high as they are at the moment, it’s unlikely that property prices will crash.
“Based on our current economic assumptions, we anticipate a gradual rather than a precipitous decline [in house prices],” said Kim Kinnaird, a mortgage director at Halifax.
Demand still tends to outstrip supply of homes in many areas across the UK. Wages are still rising even faster than inflation putting homeowners in a better financial position while falling mortgage rates are enticing buyers to return to the market. In this scenario, house prices could actually rise rather than crash.
Why are house prices so high?
Despite recent house price falls, they are still high by historical standards and have been rising much faster than wages.
The average price of a UK home has nearly trebled since the turn of the century and increased by more than 60% over the last decade according to Nationwide building society.
In 1999, you could expect to buy a median house in England for 4.4 times the median income. By 2022, that had doubled to more than 8 times the median income.
A shortage of housing stock and high demand for properties has certainly inflated prices. But a significant factor has been the low interest rates since the financial crash.
People were more able to afford mortgages because borrowing money was cheap. This is no longer the case.
Bank of England increased the base rate 14 times from its record low of 0.1% in December 2021. The base interest rate was then static for a year at 5.25% until it was cut to 5% in August 2024. As a result average mortgage rates shot up from around 2.3% for a two year fix at the end of 2021 to around 5.9% now. They reached over 6.85% in summer 2023.
You can read more about why the central bank has been raising rates.
How are mortgage rates affecting house prices?
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.
There are a number of factors that could cause house prices to fall:
- The Bank of England not cutting rates despite market expectations
- The cost of living crisis dragging on is still putting pressure on household budgets
- First-time buyers especially could hold off as they wait to see what happens
The Royal Institution of Chartered Surveyors’ (Rics)December 2023 UK Residential Market Surveyreported a downturn in buyer demand, but highlighted that this marked the “least downbeat reading since April 2022”.
The Resolution Foundation think tank has said that if interest rates remain at the current high level then average house prices could plunge by 25%. This would take the average house price from £285,000 today to nearer £215,000.
All eyes are on mortgage rates; how they change will have a significant impact on house prices. They’ve spiked recently, but given the overall fall in mortgage rates since summer 2023, demand for homes may rise and property prices may not sink this year after all.
Read more: Is now a good time to buy a house?
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What are the regional variations in house prices?
There are differences in house price movement depending on where you live within the UK, according to the latest ONS figures for the year to December 2023:
- North East: -0.8%
- Yorkshire and the Humber: -1.2%
- North West: 1.2%
- South East: -4.6%
- East Midlands: -1%
- East: -3.8%
- West Midlands: -1%
- South West: -2.2%
- London: -4.8%
London’s house prices remain the most expensive in the UK at £508,000 in December down from £516,000 the previous month.
By contrast, the northeast has the lowest average house price of all English regions at £157,500.
Average annual house prices to December 2023 decreased in England to £302,000 (-2.1%) and in Wales to £213,000 (-2.5%), but increased in Scotland to £190,000 (3.3%).
House price figures in Northern Ireland are released every three months, but the last quarter of 2023 showed average prices at £177,500 (annual change 1.4%).
How do prices differ for different types of property?
The pandemic saw our housing preferences shift away from flats to detached, family homes with gardens and a space for a home office. Mortgage lenders have continued to see differences in price trends between property types.
Figures from Nationwide Building Society of average asking prices between 2020 and 2022 showed:
- A detached property increased by 26%, or nearly £78,000
- Flats increased by 13.4% on average, or £23,000
According to the latest ONS statistics, other property types fell in price, with terraces down 3.8%.
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