UK house price forecast: property sales and demand up on a year ago

Property sales and demand rose in the final weeks of 2023 according to data from property website Zoopla. Above average levels of new house sales were recorded: a 17% increase compared to the same time last year. Zoopla also predicts that house prices will fall by 2% next year, while first time buyers will return to the market.

Property market boost: the number of housing transactions rose at the end of 2023.

Buyer demand despite high property prices

Zoopla’s latest House Price Index (HPI) reveals that demand is almost a fifth (19%) higher than the same time in 2022 when higher interest rates were brought in. Following months of low supply, more homes are coming to the UK housing market, giving buyers increased choice and supporting sales, while the gap in pricing between buyers and sellers is narrowing. Due to this, the HPI shows a slower pace of annual house price reductions, at 1.1% in November 2023, down from 7.2% a year ago.

Buyer confidence is returning to the housing market. Source: Zoopla.

Property market stability

Cash buyers are set to account for a third of all sales in 2023 while mortgaged sales are predicted to be 30% lower as the high average mortgage rates take their toll on demand. The Bank of England raised its base rate to 5.25% in August in a bid to curb inflation and it remains unchanged since then.

While there were widespread predictions of house price falls in 2023, there are several reasons why this has not happened. These include the high growth in average earnings and the fact that homebuyers have faced tough mortgage affordability tests introduced for new borrowers since 2015, designed to prevent them from taking on excessive debt in times of low-interest rates. These factors have prevented a major revaluation of houses, making the UK housing market resilient and enabling many households to deal with the move to higher mortgage rates.

Stress testing by mortgage lenders has kept the property market relatively stable. Source: Zoopla.

Home movers widen their search area

Many buyers want to move house in their local area and search over an average 4.3-mile radius according to Zoopla: just a quarter of prospective buyers say they plan to move to a completely different location. However, higher borrowing costs will lead buyers in 2024 to search further afield to find better value, say Zoopla, especially those living in expensive markets in the south east. Zoopla’s research shows that almost half of potential home movers in the south have a 10-mile search radius as they seek better value and more space.

UK house price forecast for 2024

The steady increase in new sales seen in the latter part of 2023 will continue into 2024, Zoopla predicts. Adding to this will be the seasonal upsurge in interest in the housing market from January. While mortgage rates are edging lower, affordability is the key issue for homeowners reliant on a mortgage: the higher rates will continue to bite with half of those with fixed term mortgages yet to move onto higher rates from cheaper deals.

At the end of 2023, house prices appear to be 10-15% overvalued, comments Zoopla, despite slight price drops. As incomes rise in 2024, house price reductions of 2% are predicted over the year with housing transactions expected to hold steady at 1m sales over the year.

First-time buyers will be the biggest group of potential buyers in the next two years despite high mortgage rates and the cost of living crisis. Rapidly rising rents continue to motivate this sector which knows that average rents have risen faster than average mortgage repayments over the last three years.

Further modest house price falls

While the current high mortgage rate means continued pressure for first time buyers and those moving to higher-rate mortgages, house price reductions will see affordability constraints slowly ease.

Richard Donnell, executive director at Zoopla commented:

The housing market has been more resilient than many expected over 2023 but it hasn’t been a surprise to us. Mortgage regulations introduced in 2015 have stopped an over-valuation of housing which is why the decline in house prices has been modest over the year.

House price falls have been concentrated in the south and midlands while prices are still slightly higher over the year in Scotland and Northern Ireland. UK housing still looks expensive by historic standards which is why we expect UK house prices to fall a further 2% over 2024 as prices and incomes re-align.

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