NEWS: Will House Prices Drop in the UK in 2024?

01-May-2024
01-May-2024 10:15
in News
by Sam Hodgson
Will house prices drop in the UK in 2024

House prices have begun to rise unexpectedly in 2024 - but is a drop still expected?

The average UK house price has been increasing gradually since the beginning of this year, contrary to expectation. This is primarily down to increased buyer activity in the early months of 2024, which could indicate that the housing market is slowly recovering.

COVID-19, the mini-budget and the war in Ukraine have all contributed to driving up inflation in the UK. In an attempt to tackle inflation, the Bank of England has held the base rate at 5.25% in June, which is the highest it's been in over 14 years. 

High interest rates, combined with escalating inflation and the cost-of-living crisis, caused a slump in the market that lasted most of 2023. But with inflation back to the Bank of England's 2% target now, buyers have entered 2024 with a renewed appetite. In February, buyers' demand was 11% higher than in 2023 and agreed sales were up by 15%.

As financial experts geared up for a potential base rate reduction later this year, many banks began offering more affordable mortgage deals. One lender offered a 3.89% interest rate mortgage in early January 2024. For many, a drop in rates was enough of a green light to encourage buyers back into the market.

These changes are still incremental, so whether house prices continue to go up will depend on inflation and how long it takes the Bank of England to settle on reducing the base rate.

In 2023, the UK saw its first annual drop in property prices in over ten years. Research by Zoopla revealed that property prices dropped across 80% of the UK. This is particularly the case in London, where house prices have dropped by 3.9% since last January. 

In this post, we aim to explain what causes a slump in house prices, whether house prices will drop in 2024 and how the Bank of England base rate affects the entire market - regardless of mortgage type and your status as a renter or homeowner. 

Related: Average Mortgage Repayments Up 60% Since 2021

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The house price index (HPI) graphs below shows how the average house price have dropped in 2023.

Will house prices drop in the UK in 2024

Will house prices drop in the UK in 2024

Below are the results of a recent survey we conducted - asking our readers their thoughts on the current housing market:

House Prices Over 12 Months

  • It’s a pessimistic outlook for property prices in the UK, with 41% of participants predicting a decrease in house prices over the next 12 months, and only 24% thinking they’ll increase. 

The Bank of England base rate is at its highest in 15 years, and while this has succeeded in reducing inflation to 3.2%, homes are still costly for buyers due to relatively high mortgage rates. While there's ample evidence that house prices will continue to increase in the coming months, the boost in property value has been relatively incremental, so there is still a possibility that it house prices will take a downturn.

With an overall increase in property owners selling up and many first-time buyers waiting for mortgage rates to drop further before making the jump, it's difficult to say whether this appreciation in value will begin to snowball. Because of this, many homebuyers have been experiencing lower house prices but consistently expensive mortgage rates.  

But it's not all bad news. Not only has inflation dropped to the lowest it has been in two years, but rates for some products have been easing gradually throughout 2023, indicating that lenders believe the base rate will drop in the foreseeable future. 

While homebuyers haven’t been able to enjoy falling house prices due to high mortgage costs this year, falling mortgage rates and financial forecasts suggest that there may be an upcoming reprieve. But for now, investors who are willing to wait out current mortgage costs to take advantage of a great deal seem to be at the forefront of the buyer’s market. 

At the beginning of 2023, research from Finanze suggested residential house prices would fall by 11%. But the economy has faired better than many expected, and now house prices are slowly creeping back up in response to the flurry of buyer activity since January 2024. 

As the market shifts, we're seeing buyers still priced out of expensive areas as they look to more affordable alternatives. In these expensive areas, we've seen a trend of homes being sold below the asking price, compounding the overall downturn in house prices across the UK. 

This price trend, coupled with rising interest rates, has left first-time buyers and those looking to refinance unclear of their options as they look towards 2024. 

But research from Rightmove also suggests that: 

  • Lenders are confident in the long-term property market, as indicated by the release of 100% mortgage products with longer-term fixed rates. 

  • The property market is exceeding many expectations, offering a positive landscape for both vendors and landlords to capitalise on high-demand for properties and rentals. 

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Why Could House Prices Go Down?


Will House Prices Continue to Fall in 2023?


What Markets Are Buyers Trending Towards in the UK?


How Will First-Time Buyers Be Affected?


How a Mortgage Broker Can Help 

Why Could House Prices Go Down?

Generally, numerous factors cause a falling house price trend – here are 4 of the most relevant for 2024:

1

Economic downturn

A recession will lead to a decrease in demand for housing, which can cause house prices to decline.

2

Supply and Demand

With affordability becoming paramount, buyers are looking towards affordable urban areas as opposed to historically expensive regions such as central London or desirable rural areas. A lack of demand will drop house prices as buyers continue to be priced out.

3

Higher interest rates

When borrowing is more expensive, the number of people who can afford a home reduces, lowering overall demand. Interest rates are on the up, meaning mortgages are becoming more costly despite falling house prices.

4

Negative market sentiment

With the widespread belief that the housing market is in a downturn, we could see a continual slump and decrease in demand for housing and reduced house prices. However, certain areas may be affected by negative sentiment more than others.

Read blog: Moving to the South West from London

Will House Prices Drop in 2024?

As the market shifts, we're seeing buyers still priced out of expensive areas as they look to more affordable alternatives. But in these expensive areas, we've seen a trend of homes being sold below the asking price, compounding the overall downturn in house prices across the UK. 

This price trend, coupled with rising interest rates, has left first-time buyers and those looking to refinance unclear of their options as they look towards 2024. 

But research from Rightmove also suggests that: 

  • Lenders are confident in the long-term property market, as indicated by the release of 100% mortgage products with longer-term fixed rates. 

  • The property market is exceeding many expectations, offering a positive landscape for both vendors and landlords to capitalise on high-demand for properties and rentals.  

Related: NEWS: What Will My Mortgage Go Up To In 2023?

What Markets Are Buyers Trending Towards in the UK?

Zoopla's data suggested a trend is forming for affordable housing markets in 2023, as buyers favour cities over coastal or rural areas and the central London market, of which many are now priced out.

Certain areas in the UK are poised to see some growth based on the affordability of houses in the area and their employment base.

The reason for a shift to urban areas lies in transactional data gained from expensive housing markets, which shows a trend of homes selling below the asking price.

This has been a significant factor for the downturn in previously desirable areas as buyers shift towards more affordable alternatives. Because of this, affordable urban areas could see less of an impact on house prices overall compared to the rest of the country.

Yet, it's still important to consider that these affordable markets will still feel the pang of higher interest rates.

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How Will First-Time Buyers Be Affected?

First-time buyers must have their expectations measured in light of the recent house price dip. Despite falling property prices, mortgages remain expensive for those attempting to leap onto the property ladder. 

This also isn't helped by certain lenders pulling out of the government guarantee scheme aimed at helping first-time buyers with a large LTV (Loan-to-Value) and a small deposit despite it being extended into 2023. Most importantly, however, interest rates remain high, which counterbalances the drop in property prices. 

This fact alone can bar the way for many first-time buyers – not to mention that the affordability gap between renting and owning a home is becoming ever closer, making it just as expensive to rent as it is to pay a monthly mortgage payment. 

Because of this, Landlords across the UK (especially in more desirable areas) are raising tenants' rent to counteract their rising mortgage payments. 

Rents rose by 5.1% between 2022 – 2023, according to the Office for National Statistics, and are set to rise by up to 5% in 2024

Need a refresher on how much you can borrow? Use our calculator: 

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While you're here, check out our video on our top tips on how to get a bigger mortgage:

Looking for a More Affordable deal? A Mortgage Broker Can Help

You may find yourself in the position of many in 2024: either looking to refinance, downsize or secure the best mortgage despite high interest rates - or you're a first-time buyer looking to get on the property ladder.

Our team can help. We compare mortgage products and interest rates and find the best deal for your circumstances from various lenders throughout the entire market.

We also have a news piece on the latest rate changes in the industry - it closely follows the mortgage market and is updated when there are significant lender announcements.

An expert mortgage advisor can provide you with all your options in an often confusing and increasingly competitive market.

We can help you better understand these options and find you a bespoke deal, whether you're a first-time buyer or looking to refinance.

Call us today on 0117 959 5094 to see how we can help, or book a consultation with us below.

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