Improved Affordability on Horizon for UK’s Housing Market
As we approach 2024, the UK’s housing market is set to experience a pivotal shift. The affordability of homes is expected to improve, potentially benefiting a broader demographic of potential homeowners. This improvement arises from a forecasted increase in wage growth coupled with a stagnation or decrease in house prices, thereby enhancing purchasing power. This could mark the longest period of improved affordability since the early 2000s, providing a beacon of hope for those previously priced out of the market.
Unveiling the Numbers
The Nationwide Building Society reported a 1.8% decrease in average house prices in 2023—a softer decline than experts had projected. Despite this drop, house prices remain 20% higher than pre-pandemic levels recorded at the end of 2019. The average house price in the UK stands at £257,443, with expectations of a static or falling trend in 2024.
However, Bloomberg Economics suggests a disconnect between current UK property prices and economic fundamentals. They indicate a 10% gap, raising concerns about potential overvaluation. Despite this, experts anticipate a ‘benign’ year ahead for the housing market, with low unemployment and continued wage growth.
Government Measures and Market Challenges
The Conservative government is considering measures to address housing affordability. Proposals include longer fixed-term mortgages and the revival of the ‘Help to Buy’ program. These initiatives aim to provide relief to households grappling with the cost of living crisis and higher mortgage rates.
Despite the hopeful outlook for affordability, the UK’s cost of living crisis and elevated mortgage rates continue to challenge households. In particular, many individuals will need to refinance in 2024 when their mortgage deals end, according to the EY ITEM Club.
Buyer Behaviour and Market Activity
Although house prices fell in 2023, higher mortgage rates meant buyers didn’t reap the full benefits of reduced prices. Sales haven’t returned to 2019 pre-pandemic levels, and consumer confidence remains fragile. Consequently, buyers are targeting smaller, less expensive properties, with flats faring better than other property types.
Despite these challenges, the affordability improvement may provide the much-needed impetus for a revival of the UK’s housing market in 2024. However, the trajectory will largely depend on overall economic stability, wage growth, and government assistance.
