Over the last couple of years, inflation and interest rates have never been far from the headlines. To tackle double-digit inflation, the Bank of England (BoE) has raised interest rates 14 times since December 2021.
With interest rates having reached levels last seen before the global financial crisis, this has significantly increased the cost of borrowing for millions of households. Many more will see their payments rise when their deals end in 2024.
Additionally, a cost of living squeeze means the housing market has been subdued. Higher rates and increased costs are placing an ongoing strain on housing affordability for potential homebuyers, dampening prices.
After a tough 2023, will the situation improve in 2024? Read on for some expert verdicts.
Interest rates set to remain higher for longer
Having increased the base rate to 5.25% to try and control soaring inflation, the BoE now faces some tough decisions.
While inflation fell to 4.6% in the year to October 2023, it still remains more than twice the central bank target. Reducing interest rates now could act to drive up inflation if households have more disposable income to spend.
While most experts believe that UK interest rates have peaked, there are differences of opinion about when they may start to fall.
The Telegraph reports that economists at Goldman Sachs said in a note to clients that the Bank of England could cut interest rates as soon as February or March if the economy falls into a full recession.
Meanwhile, markets expect the first cut to come in the middle of 2024 – perhaps in June – depending how robustly the economy performs in the first part of the year.
This is Money says that analysts at Morgan Stanley have forecast that interest rates will be cut as soon as May and fall to 4.25% by the end of 2024. Meanwhile, research firm Capital Economics is more cautious, and doesn’t think the BoE will cut rates until “late 2024”, before reducing the base rate to 3% by the end of 2025.
Whatever the likely path for rates, it’s highly unlikely that they will fall as quickly as they rose, and so rates may have to remain higher for longer while inflation persists. Once inflation starts to fall, the BoE will have more room to ease the burden on borrowers.
So, if you’re likely to need a mortgage in the next year, it will pay to seek advice as rates are unlikely to be significantly lower than they are entering 2024.
House prices
2023 has been a tough year for the property market, with a squeeze on affordability and rising mortgage costs hampering many potential borrowers.
The latest data from Halifax suggests that the average UK house price fell by 3.2% in the year to October 2023, while the Guardian reports that the Nationwide house price index saw a 3.3% year-on-year fall.
And, while experts have mixed views on the level of decline in 2024, the consensus is that house prices will continue to decline.
The Guardian reports forecasts from Lloyds Banking Group, Britain’s largest mortgage provider, that house prices will have fallen 5% by the end of 2023 and were likely to decrease by another 2.4% in 2024. Santander says prices will have fallen by 7% this year and will decline by a smaller 2% next year.
Leading estate agent Savills is predicting an overall 3% reduction in UK property prices in 2024 – although there will likely be regional variations. They also predict prices will fall in 2025 before bouncing back in most areas in 2026.
Property website Zoopla expects UK house prices to fall 2% over 2024. They say that “homes are currently looking expensive by historic standards amid rising mortgage rates over the last 18 months”.
The number of properties for sale has also reached a five-year high. This means sellers will have to price homes competitively in order to sell, also putting pressure on prices.
The Office for Budget Responsibility is more pessimistic, however. The Standard reports that they predict that house prices will fall by 4.7% in 2024, and that it could take until 2027 for prices to return to 2022 peak levels.
It’s likely that, as inflation continues to reduce and interest rates likely follow suit, affordability will improve. That should help to support house prices – although it may be 2025 before they start to recover.
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If you are buying your first home, moving, or looking to switch your mortgage, working with an expert can add huge value.
Get in touch to find out how we can help. Email [email protected] or call us on +44 (0) 20 3411 0079.
Please note
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