In order to consider what is in store for the UK housing market in 2024, you first have to understand where the ups and downs in the mortgage markets and regulatory intervention have left us at the end of 2023.
Frustrated first-time buyers, cash-strapped private renters, smaller-scale investors and anyone having to re-mortgage would have been able to make a plausible case that the market was stacked against them in 2023.
Much higher mortgage costs made home ownership less attainable and caused many existing homeowners coming to the end of their fixed rate to undertake a root and branch review of their household finances.
Balancing the books in 2023
It also became substantially more difficult for buy-to-let investors make the sums add up.
The true impact of measures such as the tax relief on mortgage interest came sharply into focus in the higher interest rate environment.
And while plans to tighten minimum energy efficiency standards were kicked into the long grass, the government pressed forward with plans to bring to an end the assured shorthold tenancy.
These issues combined resulted in a fall in the number of homes available to rent, which had a knock-on effect on rental growth, which now looks to end the year close in double digit territory.
Price falls contained
Yet the house price falls recorded by the likes of Nationwide, Halifax and the Office for National Statistics have been relatively modest.
Yes, mortgage approvals for house purchases have fallen as mortgaged homeowners have looked to batten down the hatches. But total activity levels have been less affected as cash buyers, more readily able to take a medium-term view on the market, have sensed an opportunity.
Even if we have past peak pain in the housing market, that does not mean we are quite out of the woods yet.Perhaps more importantly, while the level of unsold stock has risen, there is still not a deluge of homes for sale. And so we have not seen the kind of imbalance between supply and demand that were features of the market in the early 1990s or in the wake of the great financial crash.
Mortgage market changes
In this respect, the shift towards longer-term fixed rate mortgages in the run-up to recent events has insulated the market. So too has the mortgage regulation introduced in 2016, which saw borrowers' affordability stress-tested to account for an increase in interest rates.
As a result, where borrowers have come to an end of their fixed rate mortgage, it has more often been financially uncomfortable than wholly unmanageable.
And where homeowners have faced financial difficulties, options have been laid out to extend their mortgage term or go interest-only for a period.
Are we out of the woods yet?
Now headline rates of inflation have started to fall in a meaningful manner, the bank base rate has reached a plateau and much needed stability has returned to the mortgage market.
Furthermore, both the Nationwide and Halifax house price indices have recently returned to monthly house price growth.
But even if we have past peak pain in the housing market, that does not mean we are quite out of the woods yet.
Housing market surveys remain mired in negative territory, with the likes of Rightmove and Zoopla continuing to report that a higher than usual numbers of sellers continue to cut asking prices.
Though fixed rate mortgage costs have eased back, they are still much higher than many borrowers had become accustomed to. Moreover, a further 1.2mn fixed rate mortgages are coming to an end in 2024 and the first interest rate cut still looks a little way off.
A year of two halves
Add in some caution accompanying a general election and it looks like a return to sustained price growth is more likely to be a phenomenon of 2025 than 2024.
Instead, we expect 2024 to be a year of two halves: modest price falls of around 3 in per cent the first half of the year, and little if any movement in pricing in the second half of the year, with transactions broadly on par with this year and similarly weighted to equity-rich buyers.
This means that prime markets (broadly the top 5 per cent to 10 per cent of a given market by value) synonymous with cash and equity-rich buyers will recover more quickly than their mainstream counterparts.
We expect investor activity to be largely confined to larger cash-rich landlords.Thereafter progressive cuts in base rate should gradually bring more buyers into the wider market and increase their purchasing power, giving capacity for price growth of around 18 per cent over the next five years.
From a rental perspective, we expect a tail-off in rental growth to lag a fall in wage growth, given the extent of the disconnect between supply and demand in the rental market.
With the renters reform bill expected to hit the statute books in 2024, we expect investor activity to be largely confined to larger cash-rich landlords.
On that basis we expect that rental growth will rise by a further 6 per cent next year, before affordability pressures mean it will return to lower levels of growth between 2025 and 2028.
Lucian Cook is head of residential research at Savills
