Whether you’re buying a home or selling, it’s likely more challenges lay in wait for the housing market in 2024.
Slow, steady and resilient were popular watchwords for the residential property market in 2023. Seemingly, there could be more of the same in 2024.
Slowdown in property sales
Against a backdrop of higher borrowing costs and wider financial uncertainty, 2023 was a year when many homebuyers took stock of their situation instead of taking action. HM Revenue & Customs (HMRC) data shows the number of residential property transactions completed in the first 10 months of 2023 was the lowest in a decade, excluding the pandemic-affected year of 2020.
Generally, mortgage rates have been falling back since the end of July, yet they remain notably higher than what borrowers have become used to over the past 15 years. Combined with the cost of living crisis, many would-be homebuyers and movers have either been unable to afford the mortgage they need or are reluctant to make their move.
“A combination of higher interest rates and high house prices mean that it’s an extremely tough situation for home buyers, with housing costs currently at their highest levels for many years,” explained Alice Guy, head of pensions and savings at investment platform interactive investor, in an email.
Potential for spring pick up
According to Zoopla’s November House Price Index, demand from buyers fell during the summer as interest rates on mortgages increased, but started to return in the autumn. However, the property portal also says demand remained “low compared to normal market conditions”, citing a 13% drop compared with 2019 (before the potentially skewing effects of the Covid-19 pandemic and the financial turbulence caused by the mini-budget in 2022).
“It’s not a brilliant market for either buyers or sellers right now,” said Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown, in an email. “There are so few buyers around that it’s incredibly difficult to sell. Likewise, for buyers, so many sellers have come off the market that there’s little to choose from.”
It comes as no surprise that UK Finance, the trade association for the UK’s banking industry, believes mortgage lending to homebuyers was around 23% lower year on year in 2023. At the same time, the trade body predicts a further fall of 8% in 2024. However, if borrowing costs continue to fall, Coles believes there may be some room for optimism.
“We expect the usual spring pick up next year, especially if mortgage rates come down a little further,” said Coles. “When the market starts to expect Bank of England cuts – as we get further into the year – those mortgage rates will come down further, and bring far more buyers back. At that stage, mortgage approvals are likely to pick up, and it’s likely to get easier to sell. However, given the downward pressure on prices, realistic pricing will be key.”
Buyers’ market could lead to bargains
The message around pricing is one that sellers already appear to be taking on board. According to Rightmove, the average asking price of homes coming to the market was almost £7,000 lower in December compared to November, equating to a drop of 1.9%.
While acknowledging seasonal factors usually lead to lower prices over the festive period, the property portal noted the fall was larger than the average December reduction of 1.5% seen over the last 20 years, suggesting competition among sellers had ramped up.
In a similar vein, Zoopla reported in November that the average discount secured by buyers was 5.5% below the asking price, equivalent to a saving of £18,000 and the largest concessions seen in five years.
If the trend continues into 2024, Karen Noye, mortgage expert at Quilter, a wealth management firm, believes it is home buyers who will hold most of the cards. “Lower demand will mean it is a buyers’ market and given the current environment, we could see many making lower offers in the hope of getting a bargain,” she said in an email.
Coles believes if prices ease a little and mortgage rates continue to fall, it could also work in the favour of first-time buyers. “It could make that first step onto the property ladder a little bit more comfortable,” she said. “However, falling prices may also make these buyers nervous, because they tend to have smaller deposits, so will worry more about the risk of negative equity. It’s why negotiating a bargain in this kind of market can offer valuable protection.”
Across 2023 as a whole, Rightmove reported that average asking prices ended the year 1.1% lower than they had started it, and said this showed that “the 2023 market was more resilient than many predicted”.
Meanwhile, house price data for November from mortgage lender Halifax showed a similar drop of 1% in property prices compared to a year earlier and expressed similar sentiment in saying prices had “held up better than expected”. Another lender, Nationwide, said prices in November were 2% down on a year ago.
‘Small dip’ in house prices predicted
Looking ahead, many are expecting a similar scenario to play out in 2024, with Rightmove predicting asking prices will fall by 1% across the next 12 months and Zoopla anticipating a 2% drop in house prices.
“House prices may drop further at the beginning of 2024 as high mortgage rates and broader economic uncertainties continue to weigh heavily on budgets and sales stall as a result,” added Noye. “However, despite these ongoing pressures, low levels of housing stock and high rental costs will continue to nudge people towards buying which will likely limit any fall in house prices to a small dip as opposed to a significant drop.”
A similar forecast is offered by Cameron Misson, an economist at the Centre for Economic and Business Research (Cebr), who said in an email to NerdWallet that he anticipates a “modest decline” of 2.6% in average UK house prices in 2024. He also predicts a “bottoming out” of prices in the fourth quarter which, if it becomes a reality, would equate to a 4.9% peak-to-trough drop in property values over two years.
“This expectation stems from the projected impact of higher mortgage rates on housing demand, which continues to ripple through the economy as fixed-term agreements gradually roll off,” Misson explained. “Given the Bank of England’s indication that it will maintain high interest rates to curb inflation, Cebr expects mortgage rates to gradually decline but remain elevated throughout 2024, dampening housing market activity.”
Image source: Getty Images
Dive even deeper
With an interest only mortgage you’ll only pay off the mortgage interest each month, but none of the original loan. Learn more about how these mortgages work, and what to consider when searching for the best interest only mortgages.