What UK house prices will do in 2024

Despite a raft of ominous predictions, the housing market held up relatively well in 2023. Just how well depends on which measure you use. 

Both Nationwide and Halifax publish house price indices based on their own mortgage approvals. The most recent releases suggested that house prices fell by between 1 and 2 per cent in the year to November. But this data is (by definition) skewed towards borrowers, who have been hit by rising mortgage rates this year. The Office for National Statistics (ONS) House Price Index (HPI) tracks all agreed sales – including cash buyers – and paints a more resilient picture. As the chart shows, by this measure, house prices had fallen by just 0.1 per cent in the year to September.  

Things are complicated further by the very high inflation we saw over the course of 2023. As house prices stood still, wages and the prices of other goods increased rapidly, meaning that property became relatively cheaper. We can account for this by looking at inflation-adjusted or ‘real’ house prices. The Bank of England calculates that once inflation is taken into account, house prices have actually dropped by 7 per cent since their January 2022 peak. 

Yet house prices have not fallen anywhere near as far as they did in the wake of the financial crisis, as the first chart shows. One reason for this is that unemployment is low, meaning that forced sales have been limited. Borrowers also have to pass more stringent stress tests today, meaning greater resilience to rising rates. Many homeowners have also simply been shielded from rising interest rates so far – 33 per cent own their house outright, while many borrowers are still on cheap fixed-rate deals secured before interest rates started rising. 

Will this be enough to keep the property market afloat next year? 

What will happen to mortgage rates in 2024?

On the plus side, it looks as though mortgage rates have peaked. According to data from Rightmove, the average five-year fix is now 5.11 per cent, down from 6.11 per cent in July. 

The timing of Bank of England (BoE) rate cuts will be an important driver of where mortgage rates go next – but economists are divided on when these will begin. Analysts at Pantheon Macroeconomics expect policymakers to cut rates by 0.25 percentage points in May next year, and see the base rate falling to 4.5 per cent by the end of the year. Not everyone is so optimistic. Forecasts from Capital Economics suggest that the BoE will be far slower to cut rates, meaning that mortgage rates could remain around 5 per cent for most of 2024.

But even as rates dip, many people will still end up facing higher mortgage repayments: 45 per cent of mortgages secured before rate hikes started are yet to renew. As these expire, borrowers will be forced to remortgage at a far higher rate. As the chart below shows, the OBR expects the average interest rate on the stock of mortgages in the UK to rise to a peak of 5 per cent in 2027 – 2.2 percentage points above the average of the previous decade. Even as rates fall, mortgages will remain expensive by recent standards, and affordability will remain stretched. 

Will rising unemployment hit house prices?

This has certainly been the case in the past. After the financial crisis, unemployment rose to 8 per cent. The combined impact of job losses and strained affordability triggered a significant spike in repossessions, which put downward pressure on house prices, as the first chart shows.

So far, the overall share of households behind in paying their mortgages has risen slightly, but it remains low by historical standards. In June, the government published a Mortgage Charter, which sets out extra support that lenders can offer to customers struggling with repayments. These include allowing customers to switch to interest-only payments for six months or extending their mortgage term to reduce monthly payments. Although 90 per cent of lenders have signed up to the Charter, the BoE reports that the take-up has been limited so far.

Analysts at Capital Economics expect a modest pick-up in unemployment, and see the rate rising from 4.3 per cent today to 4.8 per cent by the middle of 2024. As a result, repossessions will “likely remain subdued” which will prevent “additional supply being forced onto the market”. Higher unemployment is unlikely to bring house prices down. 

Will the election make a difference? 

According to Hamptons analysts, in previous decades the uncertainty surrounding a general election has been enough to persuade households to delay a big move. This shouldn’t be the case next year: after all, the housing market has shrugged off Brexit and the pandemic – not to mention the succession of prime ministers we saw in 2022.

Both major parties are also pitching for the centre ground, meaning there is less scope for radical housing policy. Hamptons analysts think that Labour might be more inclined to clamp down on second home ownership – although note that the Conservatives have introduced measures in that area too. They also see a lower chance of buy-to-let regulation from either party, given the increased recognition of the role that private landlords play in the rental market over recent years.

What do economists expect? 

Analysts at Capital Economics think that “with the peak in mortgage rates now behind us and the labour market in good shape, there is no clear trigger for another significant leg down in prices”. Their forecasts imply that house prices will only drop by 1.5 per cent in 2024.

Nationwide’s chief economist, Robert Gardner, forecasts that house prices will see “low single-digit decline or remain broadly flat” in 2024. He thinks that a combination of stronger salary growth and modestly lower house prices and mortgage rates will gradually improve affordability over time. However, housing market activity will remain fairly subdued.

Hamptons analysts also see limited scope for further house price drops, and expect prices to remain broadly flat next year. But as the chart shows, house price inflation is expected to be far slower over the next few years, with prices largely regaining old highs – rather than reaching new ones. 

There will be nuances at a local level. Hamptons analysts expect prices in the southeast to be rising by the end of 2024, with a strong bounceback in London. They also see scope for a revival of prime central London property as stronger global growth leads to higher international demand. In the north, Wales and Scotland (which saw rapid growth between 2017 and 2022, as the chart shows), price falls are expected to continue for longer. 

Experts at Rightmove also expect more action from ‘family movers’ next year. These buyers are typically looking to borrow more for a larger home, and might feel in a stronger position to do so as the mortgage market settles. As the table shows, houses at the ‘top of the ladder’ saw the greatest annual price falls in 2023, and this could go some way to reversing the trend.