As UK house price growth hits a two-year high of +4.3 per cent this summer according to the nation’s biggest mortgage lender, Halifax, we consider what is in store for the housing market throughout the rest of 2024 and beyond.
The UK housing market to date
The UK housing market experienced a significant price boom from 2020, spurred on by factors such as historically low interest rates, government incentives like the Stamp Duty holiday, and a demand for more space during the COVID-19 lockdowns. These drivers contributed to an unprecedented surge in house prices, with many regions witnessing double-digit percentage increases.
However, by 2022, the market began to cool as the broader economic environment changed.
The cost of living crisis set in, driven by global unrest, soaring energy and food costs and unwise fiscal policies, sending inflation and interest rates rocketing. The knock-on effect saw mortgage rates rise sharply, dampening buyer demand and slowing house price growth. This created a stark contrast to the frenzied buying seen just a year prior, marking the beginning of a more volatile housing market.
2024 so far
The first half of 2024 has seen notable fluctuations in house prices. After peaking in the summer of 2023, the market showed signs of stabilising, although the peaks and troughs in early 2024 reflected a degree of uncertainty in the market as inflation remained elevated and interest rates were still relatively high.
A pivotal moment came in August 2024, when the Bank of England made its first base rate cut since 2020, reducing the rate to 5 per cent after a prolonged period of increases. This signalled the beginning of a potential shift in monetary policy, aimed at easing pressure on mortgage holders and stimulating economic growth. Additionally, the outcome of the general election, which saw a change in government, has added a fresh dynamic to the housing market, with the new Labour administration indicating its intent to tackle housing supply issues and reform housing policies.
What is in store in the short term?
For the remainder of 2024, experts predict the housing market will experience modest growth.
Halifax and other analysts forecast that while there may be no dramatic price surges, the recent interest rate cut is already encouraging more buyers back into the market, particularly those who had been deterred by the higher mortgage costs seen in 2022 and 2023. With more favourable mortgage deals expected to emerge, buyer confidence is likely to recover, stabilising house prices in the short term.
Nevertheless, affordability remains a challenge for many potential buyers, and inflationary pressures on household incomes continue to limit their purchasing power. Despite some price stability, house price growth is likely to remain subdued, particularly in regions that have experienced the steepest gains over the past few years.
And longer term?
Looking further ahead, several factors will shape the housing market’s trajectory.
Mortgage rates, which have remained elevated since 2022, are expected to gradually decline as the Bank of England continues to reduce base rates in 2025 and beyond. However, the pace of these reductions will depend on how quickly inflation is brought under control. Lower mortgage rates should improve affordability and encourage more buyer activity, which would support house price growth over the medium to long term.
Another important factor is the ongoing shortage of housing stock. Labour’s housing agenda pledges to build more homes and reform the planning system to address the chronic undersupply of housing stock, thereby creating more opportunities for first-time buyers and moderating long-term house price inflation.
However, in the meantime demand is likely to continue outstripping supply in many parts of the country, particularly in urban areas like London. This imbalance is likely to continue underpinning house price growth in the longer term, even if the rate of growth slows compared to the boom years of 2020-2021.
Property experts Savills predict that the housing market will remain subdued in 2024, although economic recovery and improving affordability will mean stronger growth from 2025 onwards and an average house price rise of around 9 per cent between 2024 and 2028.
So, while the UK housing market is set to experience a period of adjustment, long-term prospects remain positive. Government reforms, improving mortgage affordability, and sustained buyer demand are likely to drive moderate but steady price growth over the coming years. For potential buyers and sellers alike, the rest of 2024 and beyond will offer a more stable, albeit slower-moving, market environment.
