UK House Prices to Fall Marginally in 2024, Says CBRE
Global real estate advisor CBRE has upgraded its 2024 UK house price forecast, from a fall of 2.2% to a marginal 0.9% decline. This will follow a 2.1% annual fall CBRE anticipates for full-year 2023.
CBRE forecasts the base rate to fall to around 4.8% by Q4 2024 as inflation gets closer to the Bank of England’s 2% target. Inflation should slow to 2.6% by the end of 2024. Annual GDP growth is expected to be 0.3% in Q4 2023, before strengthening to average 0.6% in 2024 and 1.8% in 2025.
Home sales volumes are not expected to rebound significantly, but an improved macro-economic backdrop and falling interest rates will underpin housing demand in 2024. CBRE expects that sales volumes will remain below the long-term average in 2024 at circa one million homes and improve to 1.2 million in 2025. This would mark a return to the average sales level following the Global Financial Crisis. Notably, sales volumes should recover more quickly in London’s new build market, with strong gains of 27% in 2024 and 21% in 2025.
CBRE forecasts rental growth to remain strong but decelerate from the 6.2% forecast level in 2023, to 5.1% in 2024, because of falling inflation and stretched affordability. Between 2024 and 2028, rents are forecast to grow by 19.2% across the UK and 20.7% in London.
Buyers' budgets will recover to an extent in 2024, albeit this won’t support house prices at their current level, and we expect the first half of the year will be met with continued affordability challenges. But as interest rates begin to fall, mortgage affordability should improve and as a result, house price growth could rebound in H2 2024, partially offsetting H1’s weakness.
The recovery of sales volumes will be reliant on further improvements to buyers' budgets. This will only be facilitated through mortgage rates continuing to come down, combined with a further price correction.
There are 850,000 two-year and five-year fixed mortgages renewing in 2024, which will be impacted by higher interest rates at the point of refinance. However, CBRE believes mortgage rates are past their peak. In September, the two-year fixed rate on an 85% LTV mortgage averaged 5.96%, down from the peak of 6.38% in July.
While rates are still higher than at any time since the Global Financial Crisis, the downward trajectory is expected to continue, as the main determinants of mortgage pricing - the base rate and swap rates – fall. This will improve buyers’ budgets as we move into 2024. The mortgage market is also becoming increasingly more competitive, which will benefit homebuyers and those remortgaging next year.