The UK housing market has shown unexpected resilience throughout 2024, maintaining positive momentum despite ongoing affordability challenges and fluctuations in mortgage market activity. House prices have continued to hold steady, defying predictions of a significant downturn.
Nationwide’s chief economist, Robert Gardner, has shed light on several key factors influencing this trend. He highlights the difficulties faced by first-time buyers, particularly the significant deposit hurdle that continues to act as a barrier to homeownership.
In addition to deposit requirements, the rising cost of renting is adding to the financial strain for many individuals. High rent payments are making it more difficult for prospective homeowners to save for deposits, further delaying their entry into the property market.
Gardner also emphasises the ongoing impact of elevated mortgage rates, which are placing additional pressure on potential buyers. These higher rates are not only increasing monthly repayment costs but also limiting the purchasing power of many households.
Despite these challenges, the housing market’s ability to maintain stability suggests underlying demand remains strong. This resilience could be attributed to a combination of factors, including limited housing supply and the enduring aspiration of homeownership among UK residents.
For prospective buyers, navigating these financial hurdles will likely require careful planning and consideration of all available options. Meanwhile, policymakers and industry stakeholders will need to address these affordability issues to ensure a balanced and sustainable housing market.
‘Record rates of rental growth’
Mr Gardner points out that at the start of 2024, house prices continued to remain high in comparison to average earnings, making it particularly difficult for first-time buyers to gather enough savings for a deposit. This issue was compounded by the record-breaking rental growth in recent years, which has had a significant impact on tenants’ ability to save. Many renters, burdened with increasing rental costs, have found it challenging to accumulate the necessary funds for a deposit, further widening the gap for those attempting to get onto the property ladder.
In addition to the deposit challenge, for those who had managed to save for a deposit, the high monthly mortgage payments posed another obstacle. Despite having sufficient savings, potential homeowners were still struggling to meet the monthly payment requirements due to the substantial increase in borrowing costs. These costs remained well above the levels seen in the immediate aftermath of the pandemic, presenting a significant hurdle for many.
To illustrate the scale of this challenge, Mr Gardner refers to the typical mortgage rates in 2024. For someone with a 25% deposit, the typical rate hovered around 4.5% for much of the year, a stark contrast to the 1.5% rates that were in place at the end of 2021, before the Bank of England began raising the Bank Rate. This sharp rise in borrowing costs has made homeownership less accessible for many individuals and families, especially those who were just starting to save for a home or were in the early stages of the home-buying process.
However, despite the challenging environment, Mr Gardner noted that the housing market demonstrated unexpected resilience throughout 2024. Activity levels in the housing market gradually increased as the year progressed, suggesting that despite the difficulties in affordability and higher borrowing costs, there remained a steady demand for homes. This positive momentum in the housing market could be seen as a sign of hope for both buyers and sellers, with the market proving to be more adaptable than initially anticipated.
‘Mortgages approved for house purchase’
Mr Gardner went on to highlight that towards the end of 2024, the number of mortgages approved for house purchases each month exceeded pre-pandemic levels. This trend suggested an encouraging recovery in market activity, particularly as the year progressed. The upward trajectory of mortgage approvals signalled a stabilisation in the housing market, with more buyers willing to enter the market despite ongoing challenges related to affordability and mortgage rates.
In addition, Mr Gardner observed that house price growth, which had initially seen small annual declines earlier in the year, moved into positive territory as 2024 continued. By November, house prices were approaching a 4% growth rate, demonstrating a significant shift in market conditions. This marked improvement was a surprising yet welcome change, especially given the various obstacles in the market, such as high borrowing costs and deposit barriers for first-time buyers.
Looking ahead, Mr Gardner noted that changes to stamp duty were expected to introduce a degree of volatility into the market. He suggested that many buyers may bring forward their property purchases to avoid the impending additional tax costs. This anticipated rush could lead to a significant spike in transactions, particularly in the first quarter of 2025.
Most notably, March was expected to see a particularly sharp increase in housing transactions, as buyers aimed to complete their purchases before the new tax measures came into effect. This anticipated surge could further fuel the momentum in the housing market, making early 2025 an interesting period for both buyers and sellers.
Three to six months of market weakness
Following the anticipated surge in property transactions, Mr Gardner predicts that the housing market is likely to experience a period of weakness, lasting between three to six months. This pattern has been observed after previous changes to stamp duty, with a temporary dip in market activity before a gradual recovery begins.
He explains that during this phase, it will be challenging to assess the true strength of the market, as the initial volatility could obscure the underlying trends. However, Mr Gardner remains optimistic, noting that if the economy continues on its recovery trajectory, the housing market is expected to regain its momentum over time.
With the expectation of steady economic growth, he suggests that housing market activity will likely strengthen gradually. This improvement will be driven by a combination of factors, including modestly lower interest rates and an increase in earnings that outpace house price growth. As a result, house price growth is expected to remain relatively stable, with projections for 2025 indicating a range of 2-4% growth.
These conditions should provide some relief to potential buyers, as affordability constraints are likely to ease, encouraging further activity in the housing market over the coming year.
Property prices will rise by 3.4%
The recent announcement from Nationwide aligns with a forecast from Chestertons, which predicts that property prices in the UK will rise by 3.4% next year, with London seeing a slightly smaller increase of 3%. This anticipated growth is expected to be driven by a combination of factors, including lower mortgage costs, steady growth in the UK economy, and inflation remaining around the Bank of England’s target of 2%.
In contrast, this year saw property prices rise by approximately 3%, while London experienced a decline of about 3%. According to Chestertons, the drop in London prices was primarily due to an increase in housing supply, changes to Stamp Duty, a stronger pound, and the end of the non-dom tax regime. These factors have contributed to the market dynamics, influencing both property prices and buyer behaviour in the capital.
Looking ahead, Chestertons remains optimistic about the potential for growth, suggesting that the ongoing recovery in the economy and the stabilisation of inflation will support a positive outlook for property prices in the UK, albeit with variations between regions.
Increasing interest in property
Toby Leek, the president of NAEA Propertymark, commented on the growing activity in the property market, noting that Propertymark members have observed an increase in interest, with sales surpassing the usual winter slowdown. He attributed this trend to buyers and sellers in England and Northern Ireland looking to complete their property transactions before the anticipated Stamp Duty changes, set to take effect in April 2025.
Leek further explained that this surge in market activity is likely to continue, driven by a combination of factors, including slow but steady improvements in affordability and wages, as well as an increase in mortgage approvals. He believes that this momentum will persist as buyers and sellers aim to finalise deals ahead of the upcoming tax changes.
However, Leek also suggested that after this period of heightened activity, those with more flexibility in timing may benefit from a slower-paced market. This would allow them to carefully consider each step of their property move, ensuring a more deliberate and considered approach to the buying or selling process.
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