‘Affordability pressures’ set to push house price...

House prices are set to fall further next year, two major lenders claim.

The house prices indices of Halifax and Nationwide have recorded annual price drops for much of this year, although their data shows values have risen on a monthly basis more recently.
However, annual reviews from both lenders warn that affordability pressures and higher rates will continue to hit the market in 2024.

Halifax is predicting that house prices will fall between 2% and 4% in 2024, while Nationwide said there will either be a small dip or values will be flat.

Kim Kinnaird, director of Halifax Mortgages, said UK property prices held up better than expected over the past year, falling by just 1% on an annual basis.

But she said this owes more to the shortage of available properties for sale than strength of demand among buyers, adding: “To some extent this masks the fluctuations we’ve seen in the housing market throughout 2023.

“As wider economic headwinds began to bite, house prices fell for six consecutive months between April and September, before rising again later in the year as prospects improved.

“It’s a mixed picture across the country too, with some areas still seeing annual growth, such as Northern Ireland at 2.3%, while in regions like the South East of England house prices continued to drop 5.7%.”

With unemployment levels only seeing a marginal increase, and many homeowners protected from the immediate impact of rising interest rates by fixed rate deals, Kinnaird said there doesn’t appear to have been a spike in the number of ‘forced sales.’

Robert Gardner, Nationwide’s chief economist, said the total number of transactions has been running at around 15% below pre-pandemic levels over the past six months, with those involving a mortgage down 25%, reflecting the impact of higher borrowing costs.

On the flip side, cash transactions have been running above pre-Covid levels, he said.

Gardner added: “There have been some encouraging signs for potential buyers recently with mortgage rates edging down.

“Investors have become more optimistic that the Bank of England has already raised rates far enough to return inflation to target and will reduce rates in the years ahead. This shift in view is important, as it has brought down longer-term interest rates which underpin fixed mortgage rate pricing.”

However, Gardner said a rapid rebound in activity or house prices in 2024 appears unlikely, adding: “While cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, consumer confidence remains weak, and surveyors continue to report subdued levels of new buyer enquiries. Moreover, while markets are projecting that the next bank rate move will be down, there are still upward risks to interest rates. Inflation is declining, but measures of domestic price pressures remain far too high.

“It appears likely that a combination of solid income growth, together with modestly lower house prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim. If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline, low single digits, or remain broadly flat over the course of 2024.”

Commenting on the reports, Nathan Emerson, chief executive of agency trade body Propertymark, said: “With interest rate rises and an inflation increase looking unlikely in the new year, we can start 2024 with a sense of cautious optimism.

“Though the Halifax and Nationwide reports point to a drop in house prices in the new year, Propertymark hopes that this will help maintain sales volumes and support market confidence whilst we navigate the impact of current interest rates and the rate of inflation.

“2024 presents an opportunity for Governments across all nations to focus on incentive and support schemes to get more first-time buyers onto the housing ladder.”

Karen Noye, mortgage expert at Quilter, said: “Fears that many people would be forced to sell causing there to be a glut of properties on the market have not materialised. What has been true is that demand has been subdued.

“The reality is house prices are dependent on how long people can cope with the financial strain the economy is causing them.

“The truth is that 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. Laws of supply and demand mean that at present despite lower demand, the lack of supply has made sure property prices have only dropped a few percent.”

Looking to next year, Noye said more stable mortgage rates could bring people back to the property market.

She said: “A soft landing is looking more likely at the end of the year than it did at the beginning.”