By The UK housing market has been experiencing extreme dynamics over the recent past. Most notably, prices have risen and fallen by considerable margins over the past five years, and mortgage rates peaked in July. Moreover, demand and supply are also fluctuating, setting trends in pricing and other crucial aspects.
Understandably, buyers, sellers, and investors are curious and cautious about what the future holds. Here is a brief overview of what to expect in the UK real estate market in 2024 and beyond.
The Past and Present States of the Real Estate Market
Arguably, the UK real estate market has been in turmoil since the coronavirus pandemic hit. The pandemic impacted the real estate market overnight. Restrictions prompted by the pandemic caused a halt in real estate activities and transactions almost overnight.
A surge in demand soon followed the disruption in transactions and activities as restrictions started easing and demand started peaking – notably, the pandemic’s restrictions increased the demand for larger homes in anticipation of future pandemics and restrictions. Notably, interest rates were considerably lower back then, enabling buyers to access mortgages and purchase property.
Interestingly, mortgage rates have been rising since the pandemic hit despite the rising house prices. The Bank of England hiked Bank Rates from 0.1% in December 2021 to 5.25% today. Consequently, mortgage rates peaked at 6.11% in July but have been falling gradually over the past few months.
House prices rose by only 7.8% between January 2017 and December 2019. In contrast, prices appreciated by about 20.4% between 2020 and 2023, about £48,620. Clearly, the pandemic sent the market’s growth into overdrive.
However, house prices have been falling rapidly in 2023. Notably, Halifax reports that prices fell by 4.6% (equivalent to about £14,000) in August 2023, the fastest rate in the past 14 years. Currently, average prices stand at about £264,000, while fixed mortgage rates range from 5.22% to 5.9%. It is also worth noting that the current supply of available houses is about 25% higher than in 2022.
Interestingly, Halifax and other authorities report that prices should have fallen further in 2023. However, a growing labour market and forbearance policies by lenders have helped cushion the fall.
What Does the Future Hold?
Many buyers, sellers, and novice investors are curious and slightly confused about what the future holds for the real estate market. Fortunately, authorities in the industries have released fairly accurate predictions of what to expect, including the following:
· Falling Prices
Lloyd’s Banking Group, which owns and operates Halifax, predicts that house prices will keep falling in 2024. Overall, reports predict a 2.4% decline in prices over the course of 2024. Several factors will drive the price decline, including oversupply and a cautious outlook by buyers.
However, house prices are also expected to start recovering slowly in 2025. To this end, Lloyd’s Banking Group and Santander predict that prices will rise by 2.3% and 2% in 2025, respectively. Experts predict that the price growth will be driven by falling mortgage rates and the economy’s recovery.
· Falling Interest Rates
The Bank of England has increased the Bank Rate 14 consecutive times since 2022, forcing lenders to increase their mortgage rates. To this end, mortgage rates rose to 6.11% in July.
However, mortgage rates have started falling as the BOE has paused Bank Rate hikes. Notably, ten major mortgage providers have already dropped their rates. Currently, mortgage rates range from about 4.8% to about 5.9% for fixed-rate mortgages, depending on the fixed period and loan-to-value ratio.
Mortgage rates are expected to keep falling in 2024 and beyond. However, the fall will be gradual, considering that the BOE is expected to keep Bank Rates steady for the foreseeable future.
· Higher Demand & Lower Supply
Ideally, buyers’ purchasing power will increase in 2024 as mortgage rates fall and the economy recovers. Moreover, the current excess supply of houses will decrease as demand increases. However, many buyers are currently cautious about purchasing property as they wait to see what the future holds.
Final Thoughts
Overall, house prices are expected to continue falling by about 2% in 2024 and start recovering in 2025. Mortgage rates will also fall slightly as the Bank of England holds Bank Rates at 5.25%, boosting buyers’ purchasing power and increasing demand for houses.
