The fact there is no real consensus on forecast house price movements in 2024 reflects the uncertain outlook for the UK. The Office for Budget Responsibility (OBR) believes UK house prices will fall by 4.7% in 2024. Interestingly, Savill’s is forecasting a fall of 3% across the UK and 4% in London, broadly in line with the OBR. However, some property experts predict falls of up to 10%, citing a combination of factors.
Property market indicators for 2024
The property market is difficult to predict at the best of times, although historically, the UK market has remained relatively robust even during challenging periods. As we approach 2024, several factors could place further downward pressure on house prices.
High interest rates
UK interest rates currently stand at 5.25%, which many believe is the peak, at least in the short term. While rates are expected to fall to around 4.5% – 4.75% by mid-2024, any further downward movement will likely be gradual. In reality, the housing market is adjusting to what the Bank of England describes as “high interest rates, for longer”. However, if the UK were to tip into recession, this may prompt the Bank of England to cut interest rates quicker than expected, although they would need to keep an eye on inflation.
Cost-of-living crisis
Even though inflation is on the way down, having more than halved from a peak of 11.1% earlier this year, there is still a cost-of-living crisis. The October inflation figure came in at 4.6%, a significant drop from 6.7% in September. While encouraging, due to pay growth rates less than inflation, the average UK household is unlikely to reach the relative spending power peak of 2021 until at least 2027. Consequently, this will place massive pressure on household budgets and mortgage affordability.
Flat economy
The UK economy is expected to show growth of 0.5% in 2023 and 0.6% in 2024, well below the world economy of 3.0% and 2.9%. If we look at the Euro Area, growth for 2023 is expected to be around 0.7% and 1.2% for 2024, double the forecast rate of the UK. While we saw the Chancellor announce a number of “giveaways” in the Autumn Statement, there is little room for manoeuvre, and his hands are effectively tied. There may be additional sweeteners announced ahead of an expected election in 2024, but these are likely to be relatively modest at best.
Reduced demand for property
As a consequence of the above factors, the OBR forecasts a significant drop in transaction numbers by around 6.9% in 2024. This will impact competition for houses on the market and, as we are starting to see, put downward pressure on prices. There were hopes that the UK government would announce further assistance for the property market in the Autumn Statement, but aside from extending the mortgage guarantee scheme, there were no further signs of support.
Summary
It is difficult to see any significant positivity for the UK property market in 2024, with relatively high interest rates for longer, a slowdown in the rate at which inflation is falling and the cost of living crisis. Thankfully, the doomsday scenario of double-digit falls in house prices is unlikely to emerge unless we see further economic shocks in 2024.
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