Residential Property Market Winter Update

Despite predictions from several lenders, including Halifax, that house prices would fall at the end of 2023, in a shock revelation by the bank, house prices ended the year 1.7% up, at an average of £287,105.

Does this, together with news at the start of the year that two major mortgage lenders unveiled “very significant” mortgage rate cuts, bode well for the residential property market for the year ahead? Residential property expert Gary Jeffries discusses.

The Base Rate has now likely hit its peak and fixed rate mortgage deals are easing back from recent highs. Wage growth also remains strong, which has helped housing affordability and towards the end of 2023, we saw the house price : income ratio at its lowest level since June 2020.

With three months of consecutive house price rises reported by Halifax at the end of 2023, it would appear, on the face of it, that the market is turning. Despite all this, however, it is too soon to get excited.

The nearly 2% rise in house prices was predicted by Halifax following several months of decline and the south east continues to experience sluggish movement, with house prices down 4.5% at an average £376,804.

It is also entirely possible that the growth seen at the backend of 2023 was driven by a shortage of housing supply as opposed to buyer demand – something which has been echoed by Halifax themselves.

Mortgage rates are now, thankfully, beginning to ease and, on the back of a drop in inflation below 4% at the end of 2023, we could see more confidence return to the market over the coming months.

Here’s a summary of what our residential property experts are seeing on the ground.

House prices trends

Annual house price trends have returned to positive growth with the Halifax House Price Index reporting average house prices at £287,105 at the end of 2023, up 1.1% on the previous month.

As mentioned earlier, this was the third consecutive month of increase, but does contradict the Nationwide House Price Index which ended 2023 at 1.8% down on the previous year.

Despite Halifax’s end of year statistics, the bank expects house prices to fall between -2% and -4% over the coming year.

According to Nationwide statistics, the best performing northern region for house prices was the Yorkshire & Humber, which saw an annual house price fall of 0.5%, meanwhile southern England saw a 3.4% drop. Unsurprisingly, London was the best performing southern region despite a 2.4% annual decline.

When you compare with recent years, activity levels continue to look subdued, with industry data showing lower levels of new instructions to sell homes and agreed sales.

Borrowing costs are the primary factor, given the impact of higher interest rates on mortgage affordability. Against this backdrop, homeowners inevitably become more realistic about their target selling price, reflecting what has increasingly become a buyer’s market.

Reservations and sales

The latest RICS Residential Market Survey (Nov) shows that metrics on new buyer enquiries and agreed sales have improved – but only marginally.

New buyer enquiries came in at -14% in November, the least negative figure since April 2022.  Agreed sales are -11% which compares favourably with -23%, suggesting that the downward trend in sales is abating.

Meanwhile, the latest HMRC monthly property transaction data showed that the number of residential transactions fell for the third consecutive month in November, to 87,640; 22% lower than November 2022 and 2% lower than October 2023.

As a result, housebuilders such as Barratt Homes, remain cautious about the year ahead, stating that the outlook remains “…uncertain with the availability and pricing of mortgages critical to the long-term health of the UK housing market.”

Going into 2024, Barratt expects to deliver between 13,250 and 14,250 homes, including 650 from joint ventures and around 750 for the private rental sector.

Meanwhile, Nationwide is not anticipating a rapid rebound of activity in 2024, commenting that: “…while cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, consumer confidence remains weak….Moreover, while markets are projecting that the next Bank Rate move will be down, there are still upward risks to interest rates. Inflation is declining, but measures of domestic price pressures remain far too high.

Planning remains a critical issue

The latest Housing Pipeline report (December) from the Home Builders Federation (HBF) shows that the number of planning permissions being granted for new homes continued to decline in the third quarter of 2023.

Not only this, the number of sites granted planning permission over the past 12-months in England was the lowest quarterly figure ever recorded.

Clearly, planning remains one of the most significant hurdles for residential developers to overcome, with everything from water neutrality issues and biodiversity net gain targets to navigate, not to mention the latest announcements from Gove on the National Planning Policy Framework.

It is predicted that the NPPF changes could result in a drop in the delivery of new homes by some 77,000 homes a year.

It remains a complicated landscape for developers, and this will continue to be the case until such a time as the planning system is comprehensively and systematically reformed.

What lies ahead?

Despite the ease on mortgage rates, the residential sector continues to be challenging. As we move through 2024, the UK property market will continue to reflect wider economic uncertainty and buyers and sellers are likely to continue to be cautious when considering their next move.

Whilst the pressures of the cost-of-living are easing a little and wages are increasing above the rate of inflation, consumer confidence remains low – so too does new buyer enquiries.

With this in mind, house prices are expected to fall between 1-4% for the coming year if the economic climate remains such as it is now.

Having said that, we expect housing affordability to improve gradually in 2024, as market activity remains relatively subdued. As interest rates come down slowly, more people will be in a position to get themselves on the property ladder in 2024.

Indeed, it is possible that we experience a temporary bounce back in activity in the Spring, after hints of a general election in the latter half of 2024. Could it be that recovery is on the horizon? Let’s hope so.

If you would like to discuss any of the issues discussed in this article, don’t hesitate to get in touch with our residential property experts.