George Osborne was in full flow, and his target was house prices.
Addressing a group of students on his Project Fear tour of the United Kingdom, he sounded warning bell after warning bell about the damage that leaving the European Union would do to the British economy.
The students’ job prospects – worse. The income they could expect from the world of work – down. The cost of their favourite uni grub – up.
The message from the self-assured chancellor was having the intended effect.
That was, at least, until one doom-laden prophesy solicited an altogether different response.
Cue raucous cheers from the mass of students who realised, even then, that there was a chance they could be forced to live a life on the wrong end of the UK’s rentier economy.
Apocryphal or not, this eight-year-old anecdote reveals much about the divisive nature of the UK housing market. Falls in house prices are, as the Chancellor-turned-podcaster found out, welcomed by desperate renters with aspirations to one day get a foot on the housing ladder.
But among homeowners, whose house is often the main store of their wealth, a downward move in prices is, obviously, a cause for great concern.
A move in the market tends to prompt relief in one corner and dismay in the other.
This divide was the market’s modus operandi until this year’s stagnant market contrived to leave neither party happy.
House prices – which, according to the Office for National Statistics (ONS), have stayed at 8.3 times annual income for the last couple of years – are too high for many prospective buyers to have a hope of getting on the housing ladder.
And yet, the fact that values are still down on the high-water mark set in autumn 2022 means homeowners minded to sell are reluctant to do a deal at what they perceive to be a discount.
This stalemate looks to have extended into another month, according to new data from Nationwide and Halifax, two of the UK’s largest mortgage providers.
The mutual’s monthly House Price Index, one of the housing market’s most-watched indices, found house prices in March were up 1.6 per cent on the same time last year. And its month-on-month data, which it adjusts to reflect the housing market’s traditionally ‘hot’ spring period, was down 0.4 per cent.
Halifax’s index, which came out on Friday (5), painted a similar – albeit slightly more downbeat – picture, reporting a monthly fall of one per cent. London appears to have bucked the minor decline that took place nationally, with both indices showing house prices in the capital have risen.
This, combined with widespread uncertainty about anticipated rate cuts—how many, when, and by how much—has bred much speculation on the housing market’s direction. Throw in the added curveball (or not, as the case may be) of a general election, and the moving parts become even harder to pin down.
We take the temperature of a market that has confounded expectations and whose prospects divide opinion.
Fresh off the ignominious ‘Mini Budget’ of late 2022, property analysts went into last year bracing themselves for a turbulent year. With inflation cruising past 10 per cent, markets were pricing in a year of major rate rises, which, traditionally, brings house prices down because of the dampening effect on demand that more expensive mortgages have.
Yet, according to the ONS, the average house price in the UK only dropped by two per cent.
“House prices did not come down nearly as much last year as people expected,” says Richard Donnell, executive director of research at Zoopla. “We had one of the most optimistic forecasts, saying that house prices would only fall by five per cent in 2023, but in the end the fall was less bad even than we predicted.”
The end of year number was better than expected, according to Tom Bill, Knight Frank’s Head of UK Residential Research, partly because the market began to recover in December, putting a gloss on the final figures.
“The best way to describe what the UK property market has done in recent months is 10 weeks of recovery and then 10 weeks of drift,” he told City A.M. “The recovery began in the late stages of last year, as interest rate expectations shifted. Financial markets started to expect four or five rate cuts this year. Mortgage rates responded, and we saw some momentum pick up in the market.”
But despite headline inflation falling, hawkish noises from Bank of England have poured some cold water on this short-lived recovery leading to a more stagnated couple of months up to March. “Since the middle-end of January, things have moved sideways,” Bill continues.
“The market is drifting, not doing anything exciting, and everyone playing the guessing game on when that first interest rate cut is going to happen. Mortgage lenders have been hamstrung by the uncertainty, and Tuesday’s Nationwide data reflects that.”
In addition to unanswered questions about where rates will end up, the market’s recent stagnation is also a result of holding up better than expected last year, according to Donnell. Because the housing market never fully reflected the higher rate environment last year, interest rates falling will unlikely prompt a major jump in prices.
“Without the price falls much of the market expected last year,” he explains, “it takes longer for the market to adjust to the cost of higher mortgage rates. So, even if rates begin to come down – and I do think people got slightly exuberant on interest rates – house prices just aren’t going to go up very much.”
Bill agrees: “We’re expecting prices to go up, but only by three per cent. There’s no major pressure in the system, particularly, so things will just tick along, slightly positive, but we won’t see double-digit growth for a while.”
But while prices are expected to flatline, one element of the housing market is seeing a sizeable uptick.
Mortgage approvals – the number of mortgages being granted by lenders – reached their highest rate in 17 months according to the Bank of England.
This is widely regarded to be good news. Not only suggests liquidity is improving in an area of the economy where transactions had been languishing thanks to sellers holding off for a recovery before accepting an offer. It also benefits the general economy, as house moves tend to involve big spending in other areas, such as renovations.
“Everyone should welcome a rebound in volume,” says Donnell. “When mortgage rates go up from two per cent to five per cent as they have done, it reduces people’s buying power by between 20 and 30 per cent. That’s not to say that house prices then fall by that much, but something needs to give and that tends to be volume rather than price. I do expect volumes to return to more normal levels this year.”
Osborne’s Project Fear tour of universities might have failed to prevent the country from deciding, but his party’s doom-mongering about the prospect of a Corbyn government played a major role in his party slumping to its worst post-war election.
Corbyn’s Labour Party had aspirations to tax gifts from parents which, rightly or wrongly, does a lot to hold up property prices. This, combined with several other radical plans outlined in Momentum’s Housing for the Many report, led to a jittery property market temporarily unsure of itself.
But under Starmer, who has positioned himself as a ‘YIMBY’ prime minister promising to build 300,000 homes a year, few of the same fears plague the market’s big players.
“At the last election, there was way more clear blue water between a Jeremy Corbyn-led Labour government and Boris Johnson’s Conservatives. Now, there’s just not a huge amount of difference between the two main parties. We expect Labour to carry on with the current administration’s rental reforms with a few tweaks, and getting the nation building more homes, which is the one main area of difference.”
These two priorities are unlikely to have a huge effect on the market and prices, though. “We’re not really expecting a change of government to have a meaningful impact on house prices,” says Knight Frank’s Bill. “House building and the supply of new build housing largely operate on an economic cycle rather than a political one – it’s primarily demand led. I’m not expecting a meaningful ramp up in delivery.”
One player in the housing market that made a disproportionate amount of noise about the damage being done by higher rates, were the by-to-let landlords (cue our students at the George Osborne talk reaching for their tiny violins).
The cohort, some of whom leapt on the historically low rates of 2010-2022 to hoover up rental properties, leaving themselves highly leveraged as they did so, is widely regarded to have particularly felt the squeeze.
However, in Donnell’s eyes, the gravity of their situation has been somewhat overstated. “Looking at the numbers, 40 per cent of landlords have got no mortgage at all, so higher rates have no impact on them whatsoever, albeit other costs might have gone up.
Of the 60 per cent with a mortgage, half of them – so 30 per cent in total – have a low loan-to-value mortgage [meaning the amount of borrowing they have taken out on their home is fairly low] and so won’t be too badly affected.”
Landlords who are suffering from a squeeze, Donnel argues, are likely to be based in London or the southeast, where yields, relative to the value of a home, are lower.
Sellers are taking a smaller discount to secure a sale as more properties hit the market and mortgage rates increases hit pause, according to Zoopla.
Buyers are securing an average £10,000 (3.9%) discount to the asking price to make a deal in the first three months of the year, which is far less than the £14,250 average discount (4.5%) seen in November 2023. This is lowest level since July 2003, the figures from Zoopla’s monthly House Price Index show.
Discounts remain larger in London and the South East, where there is an average discount to asking price of 4.3% or £19,500.
Read more: Bank of England says UK is coping with higher interest rates
“We don’t believe that house prices are about to increase more quickly but there is more buyer interest. Sellers need to remain realistic on where they set the asking price if they are to take advantage of improving market conditions to secure a sale and move home in 2024,” Richard Donnell, executive director at Zoopla, said.
New sales agreed are 9% higher than a year ago, a trend that is encouraging more sellers to list their homes for sale with 20% more homes for sale compared to this time last year.
The property market has received a boost, with mortgage rates now at 4.4% for a 75% loan to value 5-year fix rate loan, down by over 1% from a high of 5.8% in June 2023. After years of ultra-low rates, 4% can still be considered high but far from the average two-year deal of 6.66% recorded during Liz Truss’ mini-budget.
“Rising wages and falling mortgage rates have boosted consumer confidence and this is feeding into improving levels of housing market activity over the first quarter of 2024. House prices are falling at a slower rate but it remains a buyers market where there is much greater choice of homes for sale,” Donnell added.
Read more: Renting now cheaper than owning amid high UK mortgage costs
The strongest growth in sales activity continues to be in areas with more affordable house prices such as Yorkshire and The Humber (11%) where the average house price is £185,600 and the North West (13%) with an average house price of £194,500. The strongest growth in new sellers listing homes is in the South West (28%) and North East (26%).
The average estate agent had almost 30 homes for sale in the first three months of 2024, a return to the pre-pandemic average. This means buyers have more choice and room to negotiate, especially where homes are failing to attract buyer interest.
“While we’re yet to see interest rates fall there’s no doubt that the certainty brought about by a continued freeze has helped to improve market sentiment considerably. Despite the disappointment of the Spring Budget, buyer confidence is building and there remains a strong appetite to transact in 2024,” Marc von Grundherr, director of Benham and Reeves, said.
Watch: UK house prices creep up as experts predict ‘smoother year’ for buyers and sellers
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London’s housing market is continuing to bounce back after its slump, with house prices down just 0.4 per cent year on year for February 2024.
The average sold house price in London is now £534,000, according to the latest Zoopla House Price Index.
Sellers are now accepting £19,500 below asking price on average, a 4.3 per cent reduction, compared to £25,000 (6.1 per cent reduction) in November 2023.
There are eight per cent more homes on the market in London.
Croydon saw the biggest positive change in house prices annually, rising 2.4 per cent per cent with an average house price of £392,100.
Ealing and Bromley both saw the biggest drop in house prices, down 0.8 per cent to £514,000 and £513,000 respectively.
Zoopla said that lower mortgage rates in anticipation of the Bank of England eventually lowering the base rate from 5.25 per cent underpinned this spring bounceback.
“House prices are falling at a slower rate but it remains a buyers market where there is much greater choice of homes for sale,” said Richard Donnell, executive director at Zoopla.
“We don’t believe that house prices are about to increase more quickly but there is more buyer interest,” Donnell added.
“Sellers need to remain realistic on where they set the asking price if they are to take advantage of improving market conditions to secure a sale and move home in 2024.”
Marc von Grundherr, director of Benham and Reeves, agreed that making sure an asking price was realistic in the first place remains key, especially if the seller is keen to move home quickly.“Price remains the key compromise for sellers when it comes to securing a buyer in today’s market, with higher mortgage rates continuing to restrict buyer purchasing power,” said Grundherr.
“However, the gap between this purchasing power price point and seller asking price expectation has narrowed and we’re finding that sellers are more than happy to oblige in order to make their move.”
In some parts of London it can take as long as 241 days on average to sell a home.
Zoopla forecast that house prices won’t start rising again that quickly, as more homes continue to come onto the market and provide buyers with options.
However, London is lagging behind the rest of the country in terms of supply, with 20 per cent more homes for sale in the UK compared to this time last year.
Nationally, house prices are down 0.3 per cent year on year, with sellers accepting an average discount of £10,000 (3.9 per cent) from their original asking price.
Matt Thompson, head of sales at Chestertons, said the property market continued to improve this month.
“In March, the property market witnessed steady demand from buyers although some house hunters decided to pause their search in the hope for major incentives to be announced in the Spring Budget. As this wasn’t the case, the majority of these buyers have since resumed their property search,” Thompson explained.
“As a result, March concluded the first quarter of the year with a busy property market — particularly in the capital where demand continues to outstrip supply.”
Lower mortgage rates gave the housing market a boost in February with supply and sales all moving higher, Zoopla claims.
The portal’s latest House Price Index shows sales agreed were up 15% annually in February while stock for sale has risen by 21%.
Zoopla said this was down to falling mortgage rates boosting buyer purchasing power.
Sales momentum has been recovering for five months, prompting the property website to predict that the market is on track for 10% more sales in 2024 than last year at 1.1m.
But it cautioned that asking price reductions, while lower than last year, remain above average, as buyers remain cost sensitive.
Asking price reductions of 5% or more are greatest in the South East and East of England, Zoopla said.
The average estate agent is agreeing 6 new sales a month up from 5.2 this time last year.
That is feeding into prices, Zoopla said, with average values down 0.5% annually to £263,600.
It suggests that a “three-speed” housing market has emerged, with the Eastern, South East and South West regions, outside London, registering the largest annual falls, London remaining most expensive and the rest of the UK seeing limited declines.
Richard Donnell, executive director at Zoopla, said: “The housing market has proved very resilient to higher mortgage rates and cost of living pressures. More sales and more sellers shows growing confidence amongst households and evidence that 4-5% mortgage rates are not a barrier to improving market conditions.
“The momentum in new sales being agreed has been building for the last 5 months and the sales market is on track for 1.1m sales over 2024 supported by new sellers coming to the market. While sales are set to increase we don’t expect house price growth to accelerate further in 2024.”
| Three Tier Market | |||
| Area | Average Price | % UK Average | Price difference to UK |
| London | £534,600 | 103% | £271,000 |
| Southern England | £344,400 | 31% | £80,800 |
| Rest of UK | £188,600 | -28% | -£75,000 |
| UK | £263,600 | ||
It comes as the latest member data from Propertymark suggests buyer registrations rose 120% between December 2023 and January 2024 – albeit boosted by the quieter Christmas period – and new supply was up 79% to eight listings per branch.
But Nathan Emerson, chief executive of the agency trade body, warned: “There remains a mismatch between valuations and market expectations, with most members noting that properties are still selling at below asking price.”
New Year momentum in the property market has carried into February and new listings are at a four-year high, Zoopla claims.
The portal reported last month that buyer demand in the first weeks of January was up 14% annually, with sales agreed up 16%.
It said this trend has continued in February, with buyer demand running 11% higher than this time last year.
Buyer numbers are up across all parts of the UK but London is firmly out in front, followed by the North East and North West regions, Zoopla said.
Sales agreed are up across all regions and countries of the UK and more than 10% higher in six regions led by London, the South East and Yorkshire and Humber, according to the portal.
The flow of new homes for sale is also 10% higher than a year ago and the highest it’s been since 2020, Zoopla said. New sellers are listing their homes at the fastest pace in the East of England, the South West and North East.
Richard Donnell, head of research at Zoopla, said: “We expect rising activity to continue over the coming months. The market is better balanced between sellers and buyers than it has been for three years.
“Despite reports that house prices are rising once again it’s important sellers keep their feet on the ground. The positive news is that finding a buyer is going to be easier for most sellers but more choice of homes for sale will mean greater room for negotiation.”
It comes as Chestertons reported a 21% increase in the number of house hunters submitting offers for properties in January amid lower mortgage rates.
The agency’s latest data, comparing January to the same month last year, also shows that 17% more properties were put onto the market for sale and 7% more owners have requested market appraisals.
Matt Thompson, head of sales for Chestertons, said: “The boost in buyer activity is exactly what many sellers have been waiting for.
“Buyers have become increasingly confident since December, when interest rates were held at 5.25% and mortgage rates started to come down. This sentiment carried through to January and with more properties now on the market, we expect to see increasing numbers of buyers, additionally driven by pent-up demand from those that did not feel comfortable moving forward with their search last year.
“We are seeing all types of buyers now entering the market, including first-time buyers, young couples joining forces to achieve a joint upgrade and people that live outside of the capital and require a pied-à-terre to avoid lengthy daily commutes.”
Property supply and demand have rebounded since the start of the year amid falling mortgage rates but sellers are still making large price reductions to attract buyers, data suggests.
Zoopla’s latest House Price Index shows UK buyer demand is up 12% and sales agreed are up 13% year on year.
It coincides with a fall in mortgage rates in recent weeks, with some deals below 4%.
Supply of homes for sale is 22% higher than a year ago but despite the rebound in activity, Zoopla said a buyers’ market remains and a fifth of sellers are still accepting more than 10% below the asking price to secure a sale.
This is close to one in four across London and the South-East and rising across the rest of the UK. It is evidence that while deals are being agreed, home buyers remain price-sensitive and focused on value for money, Zoopla said.
Its index found that house prices ended the year down 0.8% at £264,400.
Richard Donnell, executive director at Zoopla, said: “It’s a positive start to the year with all key measures of housing activity higher than a year ago. The fall in mortgage rates has led to a rebound in buyer demand and sales following a weaker second half of 2023 when many movers put decisions on hold.
“This improvement in activity will support sales volumes which, at one million, reached an eleven year low in 2023. We don’t see these trends as a precursor to higher prices in 2024 as it remains a buyer’s market. Sellers looking to move should be encouraged by these early signals of activity but buyers remain price sensitive and focused on value for money. Over-optimism by sellers could quickly stall the current improvement in market activity.”
Commenting on the report, Matt Thompson, head of sales at Chestertons, said: “2024 started with a busy property market as buyers have been motivated to either commence or finalise their property search. The increasing availability of more affordable mortgage deals thereby plays a key role and will likely continue to fuel a surge in buyer activity over the coming weeks.”
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