What might happen to house prices and interest rates in 2024?

Following the global financial crisis in 2008/9, the UK witnessed more than a decade of low interest rates and robust growth in house prices, but 2023 bucked this trend.

To tackle double-digit inflation, the Bank of England (BoE) increased interest rates five times in 2023. However, after 14 consecutive increases, the Monetary Policy Committee (MPC) voted to keep the base rate unchanged in September 2023. Since then, the base rate has remained constant at 5.25%.

On the other hand, house prices fell in 2023, with Zoopla reporting a reduction of 1.2% in the year to November 2023.

As 2024 begins, what do the next 12 months have in store for house prices and interest rates, and how will they affect you and your family?

The BoE may start cutting rates in late spring of 2024

Following 14 consecutive increases in the base rate, the BoE has now kept the base rate steady at 5.25% three times in a row. As a result, many now believe that interest rates have peaked.

Indeed, after a bigger-than-expected fall in inflation to 3.9% in the year to November 2023, some analysts predict that the BoE will begin to reduce the base rate in the first half of 2024.

The timing of these reductions is very much up for debate. The BoE are likely to reduce the base rate when it feels that inflation is under control, or to provide an economic boost if recessionary fears mount.

Perhaps the best place to start is with the governor of the BoE himself. In his December 2023 letter to the chancellor – before the announcement of the November 2023 inflation figures – Andrew Bailey wrote “We still have some way to go. We will watch the data carefully and keep interest rates high enough for long enough to ensure that inflation falls all the way back to the 2% target.”

Though still above the 2% target, the steep downward trajectory of the rate of inflation suggests that the BoE is likely to reduce the base rate in 2024.

The Guardian reports that Capital Economics – a London-based economic research company – expects rates to be reduced in May of 2024, and swap rates in the City signal that the MPC will vote for five quarter-point cuts throughout 2024, ending the year on a base rate of 4%.

So, what does this mean for you?

If your current mortgage deal is coming to an end and you start looking for a new deal at the beginning of 2024, your monthly repayments are likely to rise.

According to data from Statista, in 2018 the average fixed-rate mortgage was around 2%. Towards the end of 2023 it was sitting above 5%.

Even if the BoE does begin to cut the base rate throughout 2024, mortgage interest rates are likely to be higher than when you last took out a deal. So, you should prepare for a rise in your repayments.

The type of mortgage you choose could also be affected by interest rate predictions for 2024. Given that interest rates are expected to fall you may be more likely to consider a variable-rate mortgage with the hope that your repayments will fall during 2024 and potentially beyond.

While higher interest rates may be bad news for borrowers, increased rates are beneficial if you have cash savings.

As MoneyWeek reports, banks such as Lloyds, Santander, and Nationwide increased their savings rates in 2023. This means that cash in the bank can see a much higher return than it has done for years after over a decade of record-low interest rates.

House prices are expected to continue to fall in 2024

At the beginning of 2024, house prices are forecasted to continue to trend downwards over the coming 12 months.

The amount by which prices are expected to fall varies. Zoopla expects a fall of 2%, the Guardian report Halifax forecasts a fall of between 2% and 4%, and Rightmove is a little more conservative with a forecasted 1% reduction in property values.

This continued downward trend can be attributed to low demand, high interest rates, and high supply.

As previously discussed, though they have stabilised and may begin to fall in 2024, interest rates are predicted to stay relatively high this year, maintaining the higher cost of mortgages.

This could reduce demand for homes as affordability concerns remain. In addition, according to Zoopla, the supply of properties is at an all-time high, meaning buyers are in a strong position to make competitive offers.

That said, some factors could increase demand and apply upward pressure to the market this year. There is some expectation that the rising interest rates of the past two years may have created pent-up demand as buyers wait for a more stable mortgage market.

If rates stabilise and begin to fall in 2024 these buyers may enter the market, potentially pushing prices up. In addition, lower house prices may serve to boost demand.

If you are looking to sell a property this year, expect to have to be competitive with your pricing. You may need to wait longer between putting your house on the market and accepting an offer.

Rightmove’s property expert Tim Bannister recommends you set a competitive price from the outset rather than reducing your price weeks or months into the selling process. This should create the most interest among buyers and is more likely to lead to a successful sale.

If, on the other hand, you are expecting to buy this year, you may find yourself in a stronger position to negotiate on price than you would have been in the pandemic years.

Without the strong demand of recent years, you also have the luxury of more time to make a decision. Additionally, you will likely find a wider selection of properties available on the market and this could make it easier to find a home that suits your needs.

One important thing to note is that house prices across the country will behave differently. The UK’s housing market is a collection of many separate smaller markets, and each one will likely behave slightly differently in the coming year.

Get in touch

If you’re considering your next financial steps in 2024 and are unsure about how interest rates and house prices may affect you, then get in touch. We can help you navigate 2024 and beyond, building wealth for you and your family.

Email enquiries@clarionwealth.co.uk or call us on 01625 466360.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.