UK House Prices: The Calm Before the Storm?

As we navigate the complexities of the UK housing market, a sense of uncertainty lingers. According to a revised forecast from Capital Economics, UK house prices are anticipated to stagnate in 2024, with a modest 0.5% rise predicted. This adjustment follows the latest survey from the Royal Institution of Chartered Surveyors (RICS), revealing a decline in buyer enquiries, fewer agreed sales, and an increase in price reductions compared to previous months.

The UK housing market is experiencing a slowdown.

Estate agents attribute this downturn to the recent hike in mortgage rates, with the average five-year fixed-rate mortgage exceeding 5% for the first time since January. Housebuilder Crest Nicholson has also noted a “softening” in demand since Easter, citing “volatility in mortgage rates” as the primary cause.

Mortgage rates have reached a five-year high.

Andrew Wishart, senior UK economist at Capital Economics, pointed out that this dip in demand coincides with the most significant sustained increase in housing supply since 2013, barring the period following the market reopening after lockdown. Despite the rapid increase in mortgage costs, house prices have remained more resilient than expected over the past 18 months. Analysts believe this stability is due to a concurrent decline in supply, with fewer people listing their homes for sale.

Housing supply has increased, leading to a potential excess supply.

However, recent reports indicate a rise in new listings, leading Wishart to predict that the market will soon experience an excess supply, potentially causing prices to dip over the summer. Wishart’s revised forecast considers the combined effect of increased housing supply and persistently high mortgage rates, prompting a more conservative outlook for 2024.

The UK economy is experiencing a slowdown.

In contrast, other economists remain optimistic. Rob Wood, chief UK economist at Pantheon Macroeconomics, acknowledged the impact of higher mortgage rates but maintained that a reduction in interest rates by the Bank of England later this year could revive buyer interest, potentially driving house prices up by 3% in 2024.

Interest rates may decrease later this year.

As we navigate the complexities of the UK housing market, one thing is certain - uncertainty reigns supreme. Will house prices stagnate, or will they surprise us with a resurgence? Only time will tell.

The UK housing market is full of uncertainties.