10:24 AM, 15th December 2023, About A year ago
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Halifax, the UK’s leading mortgage lender, is forecasting a steeper drop in house prices for 2024 than was seen this year, ranging from 2% to 4%.
In 2023, the average house price was £283,615, only 1% lower than 2022, despite the impact of higher interest rates on the property market.
Now Kim Kinnaird, the director of mortgages at Halifax, said: “To some extent this masks the fluctuations we’ve seen in the housing market throughout 2023.
“As wider economic headwinds began to bite, house prices fell for six consecutive months between April and September, before rising again later in the year as prospects improved.”
The Bank of England raised its base rate several times in 2023 to curb inflation, which peaked at 6.2% in October, and this pushed up mortgage rates making borrowing more expensive for home buyers.
However, mortgage rates have since fallen sharply and the Bank has kept rates unchanged at its last three meetings, with further cuts anticipated in 2024.
Ms Kinnaird said that many homeowners have not yet felt the full effect of higher rates, as they are still on fixed-rate deals that will soon expire.
She said: “Higher interest rates, and the resulting squeeze on affordability, gave many potential home buyers pause for thought when considering making a move over the last year.
“Mortgage approvals were down a quarter across the market, while overall housing transactions were a little under 20% down – both the lowest in at least a decade.”
Ms Kinnaird added that first-time buyers have been relatively active, despite the financial challenges they face – including the fast increase in rents, which rose by more than 8% in the year to October.
She said that first-time buyers have adjusted their expectations, such as buying smaller properties, to cope with higher borrowing costs.
Ms Kinnaird also said that the effect of rising mortgage rates has been partly offset by rapid pay growth, which reached almost 8% in the middle of the year.
Compared to the increase in average pay, the real term fall in house prices has been around 13% since August 2022, reducing the average house price to income ratio to its lowest since 2015.
Ms Kinnaird said: “Looking ahead, now that inflation is falling back, financial markets are pricing in cuts to Base Rate during 2024.
“Mortgage rates are already falling, with a typical 5-year fixed 75% LTV deal now below 5%, having been as high as 5.7% as recently as July.
“All being equal, these rates are expected to fall further over the coming months.”
She added: “However, while pay growth is now above inflation – beginning to ease the cost-of-living squeeze for some – other factors will continue to weigh on households’ spending power next year.
“Economic growth is expected to remain weak, with unemployment rising and frozen tax thresholds limiting any increase in take home earnings.”
