UK house prices are on track to beat forecasts of a decline in 2024, a leading estate agent has said, as a mortgage pricing war and expectations of Bank of England interest rate cuts rekindle the property market.
After a year of sustained price falls in 2023, the global property consultancy Knight Frank said it was updating its forecast for UK house prices to rise by 3% in 2024, up from an earlier estimate of a 4% drop.
Against a backdrop of falling inflation and growing anticipation of interest rate cuts, it said it expected that rising mortgage approvals seen in recent months would translate into at least a 10% increase in transactions this year.
The online property website Rightmove said asking prices for new sellers had risen by an average 1.3%, or £4,571, between December and January, the biggest increase for the time of year since before the pandemic.
While prices overall remain 0.7% lower than a year ago, it said there had been a “tentatively promising” start to the year, with 15% more new properties coming on to the market, and growing buyer demand. About 20% more sales were agreed at the start of January than at the same time a year ago, indicating returning confidence, it said.
Since Christmas, Rightmove said it had seen nine of its 10 busiest days on record for people getting a mortgage in principle to see what they can afford to borrow.
Banks, building societies and estate agents had previously all predicted falling house prices for 2024, but a succession of unexpected monthly rises in the past three months and a larger-than-expected fall in the official UK inflation rate has prompted a reassessment.
Housing will, however, remain unaffordable for many, with recent remarks by NatWest chair Howard Davies that getting on the housing ladder was “not that difficult” sparking a storm of criticism.
However, mortgage deals for those hoping to buy have become slightly cheaper, after rates rose sharply in the wake of Liz Truss’s disastrous mini-budget of autumn 2022. A five-year fixed-rate mortgage now averages 4.86%, compared with 6.11% in the July 2023 peak, and rates are widely expected to come down further.
Tom Bill, head of UK residential research at Knight Frank, said the outlook had become more positive over the past three months as interest rate expectations have changed. “The best five-year fixed-rate mortgage is now under 4%,” he said.
“Data from Halifax and Nationwide certainly suggests a corner is being turned. While the former reported a 1.7% increase in 2023 and the latter posted a fall of 1.8%, that compares to a 5% decline that both identified in August.”
Britain has seen a bidding war among high street lenders to improve their mortgage offers over recent weeks, in anticipation of rate cuts from the Bank of England this year. Financial markets expect the central bank to begin cutting borrowing costs from the current rate of 5.25% to below 4% by the end of 2024, sharply reducing the cost of taking out a home loan.
While political commentators have suggested this could help Rishi Sunak in an election year, millions of homeowners are still expected to face a big rise in monthly mortgage repayments as they reach the end of cheaper deals.
In what has been described as a Tory mortgage timebomb by Sunak’s critics, as many as 1.5m households will reach the end of cheaper deals in 2024 – with an increase in annual housing costs of about £1,800 for a typical family, according to the Resolution Foundation.
Knight Frank said inflation could prove stubbornly higher than expected amid growing concerns about the impact from disruption to international shipping in the Red Sea, after a surge in freight costs and rise in global oil prices over the past week.
“The ongoing conflict in the Red Sea and the threat it potentially poses for higher UK inflation is another risk on the horizon,” it said in the report.
