Housing Market Update - H1 2024

The housing market has remained subdued throughout the first half of 2024 as higher mortgages rates have continued to weigh on demand. The total number of housing transactions recorded in June 2024 was 91,370, 7% below the pre-pandemic (2019) monthly average of 98,000.

Despite this, house prices have fallen by less than expected and are currently 3% below the peak of Summer 2022. This equates to 14% in real terms, but the reduction has merely returned prices to 2019 levels and reversed the large increase experienced during 2020-22. As we have discussed in previous updates, many forecasts appear to have underestimated the impact of the supply/demand imbalance for housing, the level of protection that fixed rate mortgages have afforded homeowners and the strong employment market. Additionally, banks have been willing to lend over longer periods which has enabled borrowers to keep their monthly payments down despite higher mortgage rates.

Looking forward, CPI inflation fell to 2.0% in May 2024, in line with the Bank of England’s target, which has paved the way for interest rate cuts this year. Indeed, the Bank of England has cut the Base Rate from 5.25% to 5.00% this month and the latest forecast from Capital Economics suggests that the Base Rate will fall to 3.0% by the end of 2025. Whilst the August Base Rate cut of 0.25 basis points is unlikely to have a significant immediate impact on mortgage rates, it is likely to have a greater effect on buyer sentiment coming into the Autumn market. Political certainty should also improve market sentiment following Labour’s election victory.

Pricing across our portfolio has remained resilient, but unless buyers have to move house, they are generally not prepared to commit to a purchase while the Base Rate remains high and those that are generally have a house to sell. We believe that activity will pick up towards the back end of the year and into 2025 as Base Rate cuts begin feeding into mortgage rates.