- Rate cuts should boost the UK housing market – but affordability will still be strained
- The ‘race for space’ comes to an end as the London property market starts to recover
Are UK house prices rising or falling? Confusingly, the answer seems to be ‘both’. As the table below shows, the major house price indices are providing rather different answers.
Index | House price change on a year ago | Time lag |
Rightmove | +0.6% | Short |
Zoopla | -0.2% | Short |
Halifax | +1.1% | Medium |
Nationwide | +0.6% | Medium |
ONS | +1.8% | Long |
This is partially because they measure different things. The Office for National Statistics (ONS) index tracks sales after completion using Land Registry data, and, as a result, works with delayed data. Zoopla and Rightmove are far timelier but only look at asking prices rather than sale prices, while Halifax and Nationwide look only at mortgage customers so ignore large swathes of the market.
Despite the noise, there is reason to think that good news is coming down the pipeline. Zoopla’s latest figures were gloomy but marked an improvement on the previous month, recording 12 per cent more agreed sales than a year ago. With interest rate cuts on the horizon, many experts see stronger house price gains in the second half of the year.
Lower mortgage rates should deliver a boost
The Bank of England is still poised to cut rates this summer – although the pace of cuts will be relatively subdued. Traders now expect two 0.25 percentage point cuts this year (taking rates to 4.75 per cent) with the more optimistic forecasts suggesting rates will end the year at around 4 per cent. As a result, mortgage rates will tick down, rather than plummet: Zoopla analysts expect them to hover around 4.5 per cent for the rest of the year.
This means mortgage costs will continue to weigh on affordability even after rate cuts are under way. According to Zoopla calculations, mortgage repayments on an average-priced home would have cost £7,100 a year in March 2021. At 4.5 per cent interest rates, this rises to £11,400 – an increase of 61 per cent. Two-thirds of this increase is the result of higher interest rates, while the remaining is down to the rise in property prices over the period.
Why the election might slow things down
The two main parties have not yet announced any ground-breaking changes to housing policy – although some analysts think that a Labour victory could mean higher levels of housebuilding. Holger Schmieding, chief economist at Berenberg, thinks Labour’s plans to make more land available for housing around key urban centres could “modestly alleviate the housing shortage”, putting a brake on house prices.
The election could also impact the housing market for more mundane reasons. Tim Bannister, Rightmove director of property science, expects the election to contribute to high levels of “buyer distraction”, and the effect will only be heightened now that it coincides with the Euro 2024 football tournament. We could see a sluggish housing market this summer as a result.
Pandemic trends move into reverse
Demand for London property plummeted in the aftermath of the pandemic. According to Rightmove figures, 46 per cent of London home-movers were looking to leave the capital in 2021, favouring less densely populated rural towns and countryside areas. This ‘race for space’ now seems to be over. Today, only 32 per cent of London movers are looking to leave the city while the number of people looking to move into the capital has increased. This is starting to feed through to house prices in the capital.
Hamptons data suggests London sellers are achieving a similar proportion of the asking price to elsewhere in the country, having sold at a greater discount for the past eight years. Analysts at Capital Economics point out that since London is “particularly reliant on mortgaged buyers”, house prices could see a larger boost than elsewhere as rates are cut. They expect London house prices to rise by 3.5 per cent over the year.
What the experts expect
Growth may not be as substantial elsewhere. Aneisha Beveridge, head of research at Hamptons, thinks a big bounce in house prices this year is “unlikely”, although some areas will perform better than others. She expects weaker-performing areas of the capital to pick up pace, and price growth in the north of England to start to lag.
Imogen Pattison, an economist at Capital Economics, expects UK house prices to rise by 3 per cent in 2024, but this relies on interest rates being cut to 4 per cent by the end of the year – significantly further than traders expect. Zoopla analysts think house prices will only grow by around 1 per cent this year, thanks to still-high mortgage rates. Rate cuts might only deliver a modest house price boost this year – but they should also allow us to put fears of a house price crash to bed.
