UK house prices likely to fall further in 2024, say mortgage lenders

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UK house prices will probably fall further in 2024, according to forecasts by two of the country’s largest mortgage lenders, as stubbornly high borrowing costs continue to stall the property market and strain affordability.

Halifax on Friday projected that house prices will fall between 2 and 4 per cent next year, while rival lender Nationwide said prices would probably register a “low single-digit decline or remain broadly flat”.

“Even though house prices are modestly lower and incomes have been rising strongly, at least in cash terms, this hasn’t been enough to offset the impact of higher mortgage rates,” said Robert Gardner, Nationwide’s chief economist. “As a result, housing affordability is still stretched.”

Mortgage rates have declined from their peak this summer as the Bank of England signalled it had reached the end of a blistering series of interest rate increases.

The lender calculated a typical first-time buyer on average UK income would have to pay 38 per cent of their monthly take-home pay in mortgage costs, above the long-term average of 30 per cent.

BoE governor Andrew Bailey warned on Thursday there was “still some way to go” before inflation hit its 2 per cent target and that interest rates would need to stay high for an extended period.

Few property analysts expect mortgage rates to fall quickly next year. Meanwhile, borrowing costs remain three times higher than the lows recorded in 2021, meaning the housing market is likely to stay subdued with low transaction numbers and soft prices.

The UK is on track to record just 1mn home sales in 2023, the lowest number in a decade, according to property website Zoopla.

House prices have proved more resilient than some analysts expected this year — declining just 0.1 per cent in the year to September, according to the Office for National Statistics. 

Karen Noye, mortgage expert at Quilter, said: “Much of the reason why house prices have remained buoyant in the face of serious economic headwinds is that this country has very little housing stock for its population”.

House price declines are steeper when adjusted for inflation, with average real house prices no higher than they were in late 2015, according to estate agents Savills’ research earlier this year.

The forecasts from the two mortgage lenders align with other analysts. Consultancy Capital Economics forecasts house prices will probably fall 1.5 per cent in 2024, and that mortgage rates will sit just below 5 per cent for most of the year.

“This will leave affordability very stretched in 2024, meaning that the cost of a new mortgage will continue to prevent many from buying,” said Andrew Wishart, Capital Economics’ senior property economist.

Savills predicts the housing market is already past “peak pain”, but still expects modest falls next year before house prices start to increase again in 2025. Analysts said the housing predictions are uncertain, depending on how the UK economy, jobs market and interest rates develop.

“A lot depends on what happens in the labour market and the true trajectory of mortgage rates,” said Richard Donnell, executive director at Zoopla.

“Pricing needs to keep adjusting, because consumers are not adjusting what they are prepared to spend. I think we are halfway through the market adjusting to higher mortgage rates.”