Squeeze on home buyers’ budgets set to continue into 2024, say experts

But potential cuts to interest rates, as well as lower house prices in some locations, could provide house hunters with new opportunities.

Elevated mortgage rates and the wider cost-of-living squeeze are expected to maintain their pressure on the market in 2024 (Joe Giddens/PA) (PA Archive)

Home buyers’ squeezed budgets will continue to cast a shadow on property purchases in 2024, but some experts predict the market will have “bottomed out” by the summer.

Elevated mortgage rates and the wider cost-of-living squeeze are expected to maintain their pressure on the market.

But potential cuts to interest rates at some point, as well as lower house prices in some locations, could provide some house hunters with new opportunities in the year ahead.

Lucian Cook, head of residential research at estate agent Savills said: “We anticipate 2024 to be marked by continued constraints on buyers’ budgets.

“But the prospect of interest rate cuts towards the end of the next year means we expect the market to have bottomed out by the summer, even if the prospect of a general election pushes the start of a recovery into 2025.

We anticipate 2024 to be marked by continued constraints on buyers' budgets

Lucian Cook, Savills

“As in 2023, we expect to see a division in the buying power of equity-rich and mortgage-dependent buyers. That is likely to be particularly pronounced among buy-to-let investors.”

Savills forecasts that house prices will fall by around 3% across Britain in 2024. Prime central London is expected to see the least downward pressure on prices next year, given less reliance on mortgage debt and the relative value on offer to wealthy domestic and international buyers.

Rental prices are expected to increase by around 6%. Rental price growth has been in double digits but it will moderate as affordability pressures bite, Savills predicts.

Meanwhile, property website Rightmove predicts that new sellers’ asking prices will be 1% lower across Britain by the end of 2024.

Rightmove’s property expert Tim Bannister said: “Buyers remain very price sensitive, so to agree a sale, sellers will likely need to price attractively in the new year.

“The current more settled mortgage market may encourage some movers who had put off their plans due to the more volatile mortgage market earlier this year to return. Average mortgage rates have been steadily falling since July, and there are early signs there may be further cuts from lenders early in the new year.

“However, rates are likely to remain at elevated levels for much of next year while the Bank of England is signalling that the first base rate cut is not imminent, which will continue to put some pressure on affordability.

Overall, we predict a modest average fall of 1% in national new seller asking prices next year, however, this is likely to be felt differently across local markets in Great Britain

Tim Bannister, Rightmove

“Buyers are also likely to continue to see much more choice of homes for sale in their local area with the number of available homes for sale now just ahead of pre-pandemic levels, after periods of record low numbers during the pandemic.

“Overall, we predict a modest average fall of 1% in national new seller asking prices next year, however, this is likely to be felt differently across local markets in Great Britain.

“In areas where there are fewer homes for sale, and more discretionary sellers, we may see new seller asking prices remain flat, or even very slightly increase compared to this year.

“In other areas where there are more affordability-stretched buyers or more sellers with a pressing need to sell quickly due to a change of circumstance, we may see even more competitive pricing beyond this 1% drop.”

Halifax also expects house prices to edge down in 2024.

Kim Kinnaird, director of Halifax Mortgages said: “Our latest forecast suggests a fall of between 2% and 4% in 2024, though it should be noted, as with recent years, forecast uncertainty remains high given the current economic environment.”

Deposit requirements remain prohibitively high for many of those wanting to buy

Robert Gardner, Nationwide Building Society

Nationwide Building Society expects UK house prices to record a low single digit decline or remain broadly flat in 2024.

Robert Gardner, Nationwide’s chief economist, said: “A borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 38% of take home pay – well above the long-run average of 30%.

“At the same time, deposit requirements remain prohibitively high for many of those wanting to buy – a 20% deposit on a typical first-time buyer home equates to over 105% of average annual gross income – down from the all-time high of 116% recorded in 2022, but still close to the pre-financial crisis level of 108%.”

He added: “It appears likely that a combination of solid income growth, together with modestly lower house prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim.

“If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline (low single digits) or remain broadly flat over the course of 2024.”

Banking and finance industry trade association UK Finance recently said it expects mortgage lending to fall in 2024, as the number of arrears and repossessions increases.

UK Finance added that, while it will take some time for the pressure on household finances to recede, it expects the situation to improve in 2025.

Fixed mortgage rates have been cut in recent months amid expectations for the wider economy, but many homeowners who are moving onto a new fixed deal are likely to be paying significantly higher rates than they have been used to.

According to financial information website Moneyfactscompare.co.uk, across all deposit sizes, the average two-year fixed-rate mortgage on the market at the start of 2023 was 5.79%.

At the start of December, the average two-year rate was 6.04% and it has recently fallen back below 6%.

The average five-year fixed-rate mortgage at the start of 2023 was 5.63% and by early December it was at a similar level, at 5.65%.

At the start of December 2021, the average two-year fix was 2.34% and the average five-year fix was 2.64%, according to Moneyfactscompare.co.uk’s records.

Standard variable rates (SVRs), which borrowers often end up on when their mortgage deal ends, have jumped, from 6.64% typically at the start of 2023 to 8.19% at the start of December. The average SVR at the start of December 2021 was 4.40%.

The Bank of England base rate is holding steady for now. It was held at 5.25% in December, for the third time in a row, following 14 consecutive increases. In its latest report, the Bank’s Monetary Policy Committee (MPC) appeared cautious over the potential for rate cuts soon.

As we approach the new year, the clouds that have lingered over the property market appear to be clearing and we're beginning to see daylight

Simon Gerrard, Martyn Gerrard estate agents

Simon Gerrard, managing director of London-based Martyn Gerrard estate agents, said the housing market “showed a good deal of resilience” in 2023.

He said: “Inquiries and interest in buying a home remained high, but economic and interest rate uncertainty naturally caused many to put their move on hold and provided a degree of loss in buyer confidence.

“Even still, as we approach the new year, the clouds that have lingered over the property market appear to be clearing and we’re beginning to see daylight.”

Mr Gerrard added: “Mortgage lenders are starting to lower their interest rates, which is greatly encouraging, as this strongly suggests that once we see downward pressure on the base rate, lenders will respond in the right way and bring their rates down in competitive fashion.”