Ignore the Noise UK House Prices Will Fall in 2024
Published / Last Updated on 18/12/2023
Last week we saw, we suggested prematurely, an expectation that central bank interest rates would be cut but the Federal Reserve, the Bank of England and then the European Central Bank all held their rates at 5.25% to 5.50% pa, 5.25% pa and 4.0% pa respectively. Stock markets and bond markets all powered up on this speculation.
Some (and no doubt those that have an interest in a bouyant real estate market e.g. estate agents) are now suggesting that house prices will actually increase in 2024.
This week, Nationwide has suggested that property prices are likely to fall between 2% and 4% in 2024 and this broadly follows the same forecasts by Halifax. In fact, Halifax suggested last month last UK house prices would keep fallimng until 2025.
Comment
We suggest it will be close. More than 1m fixed rate mortgage deals come to an end in 2024, so there is going to be a real squeeze on net spendable income as many remortgage to higher rates. So there is downward pressure on property prices.
That said mortgage rates are falling and becoming more competitive as lenders fight for a share of a shrinking market. This is simple supply/demand economics. Banks have more money on deposit as people save to take advantage of higher deposit interest rates yet there are less borrowers out there able to afford higher interest rate mortgages.
Lenders are reacting by:
- Reducing interest rates.
- Accepting lower affordability margins
- Accepting wider underwriting criteria, e,g,, shortening the time for acceptable visas (non British applicants) or making non-UK resident mortgages more available as well as many other ways to expand their ‘acceptable borrower’ status.
That said, the economy has been flatlining for 6 months now teetering on depression vs growth. If the UK economy does move into recession then the Bank of England may cut interest rates sooner that the forecast 2025/26 to stimulate the economy. If that is the case, then we could see an earlier than expected return to property price rises.