While house prices were mostly falling in the south, they are now more widespread across the country, according to Zoopla’s latest House Price Index. However, the relatively small price falls in 2023 have not been enough to make houses more affordable and stimulate sales.
UK house prices see widespread fall
House price growth has cooled from +9.2% a year ago to -1.1 % today: the most marked slowdown since 2009 and the Index predicts that UK house prices will fall by 2% in 2024. Higher mortgage rates have hit buyer demand and the cost-of-living pressure has led to reduced buying power.
Four in five local housing markets are registering annual house price falls (up from 1 in 20 six months ago), though the drop is under 5% in all markets. While the biggest drops are being seen in south England towns (such as Colchester which has seen prices dropping by -3.5%), price falls are now being seen around England and Wales. Just 1 in 5 markets are seeing annual house price growth – the highest being in Halifax, Yorkshire, which has registered a +3.6% growth rate.
How the rise in interest rates has affected the 2023 housing market
According to the House Price Index, there’s been a 23% reduction in sales in 2023 compared to 2022 and Zoopla expects sales to stay flat at 1m in 2024. However, this could change if mortgage rates drop back to 4% early next year, which could prompt a revival in buyer interest.
Who has been buying houses in 2023?
According to Zoopla, first-time buyers will prove to be the biggest buyer group in 2023, followed by cash buyers who remain a strong presence and will account for 1 in 3 sales – an increase from an average of 1 in 5 sales over the past five years.
Looking ahead to UK house prices next year
Zoopla predicts that house sales in 2024 will be at around the same figure as this year at 1m, with income growth increasing affordability. Cash buyers will remain an important factor in the housing market, alongside first-time buyers who will feel under constant pressure to buy a house due to the impact of rising rents. Those looking to upsize are most affected by higher mortgage rates as they aim to buy a bigger property and need a greater mortgage.
And while the risks of big house price falls may be viewed as reducing, potentially encouraging people to move, high mortgage rates remain a barrier. A drop in interest rates over the coming months would revitalise the upsizer market in 2024, according to Zoopla, however, if rates stay high as they appear to be doing, upsizers may need to rethink their strategy about where to buy.
Property market set to remain subdued
House prices have fallen less than anticipated this year according to Zoopla, and with 5% mortgage rates, borrowing costs remain a problem. If rates remain this high, property prices must fall further as incomes increase to address the situation. If mortgage rates drop to 4.5% by the end of 2024, Zoopla predicts that house price growth will remain negative with prices down 2% next year. A bigger drop in mortgage rates would boost sales volumes rather than house prices.
What do industry professionals say about UK house prices?
There is potential for a housing market recovery, according to Richard Donnell, executive director at Zoopla who commented:
House prices have proven more resilient than many expected over the last year in response to higher mortgage rates. However, almost a quarter fewer people will move home due to greater uncertainty and less buying power. Modest house price falls over 2023 mean it’s going to take longer for housing affordability to reset to a level where more people start to move home again. Income growth is finally increasing faster than inflation, but mortgage rates remain stuck around 5% or higher.
We believe that house prices will post further small falls, averaging 2%, over 2024 with 1m home moves. Slow house price growth and rising incomes over the next 12-18 months will improve affordability to levels last seen a decade ago, creating the potential for a rebound in home moves as consumer confidence returns.
Put yourself in the best position to move as house prices look set to remain much as they are into next year
Karl Knipe, Director of Kings Group estate agents said:
It’s important to take a long-term view when buying a house. Very low single-digit price rises or falls make no difference when buying a home that you will live in for many years – it shouldn’t be relevant. The forecasts are showing that 2024 looks like it will be a similar year to 2023, so if you want or need to move and buy your own ‘castle,’ now is the time to do your homework and put yourself in the best position for the new year knowledge wise, financially wise and ability wise. This will ensure you’re set up to move quickly if you find a home that suits your needs.
Gloomy economic outlook will affect UK house prices
Charlie Lamdin, founder of the property website BestAgent.co.uk, and consumer champion presenter of Moving Home with Charlie anticipates tricky economic times ahead which could impact labour market conditions and lead to forced selling.
When HM Land Registry finally catches up with this year’s transaction registrations, it will show that there was far more than a ‘slight dip’ in house prices. And yes absolutely, the house price falls will continue throughout 2024 into 2025, which even Lloyds Bank has now predicted. The increase in real wages we have seen this year will turn out to be a blip, as the economy heads into the doldrums, companies impose a hiring freeze and salaries will stop climbing and resume the negative real growth we saw throughout 2022, unfortunately.
I agree with Zoopla’s view that cash buyers will be the strongest buyer group in 2024, but not so much first-time buyers, as mortgages continue to be squeezed and harder to obtain. I also suspect we have seen the peak of rent increases, and they will level off in 2024. It is my unfortunate view that the economy we’re heading into will be far worse than anyone expects and that as more and more landlords exit the market, and more fixed-rate mortgage terms ending will force more sales, we will see an acceleration of house price falls in most areas.
Final thoughts on UK house prices
A period of stagnation seems inevitable, with high mortgage rates and further slight house price reductions. If mortgage rates fall, this could of course revitalise the property market, but that’s dependent on the UK’s wider economic performance. On the positive side, if incomes rise and house prices readjust, we could see a return of confidence, but for those renting and watching rents rise, buying a home becomes ever more challenging against a backdrop of demand and shortage of property. However, an optimist with a belief in a cyclical housing market may be able to glimpse changes on the far distant horizon.