House prices, interest rates and inflation: what to expect in 2024

There’s so much speculation around the housing market right now it’s hard to see what truth lies behind the headlines on house prices, interest rates and inflation in 2024, writes John Yerou of Freelancer Financials.

UK inflation heading for two per cent, apparently

Banks are offering mortgage deals way below the Bank of England (BoE) base rate. Experts are predicting a steady house price decline. And yesterday, finance market analysts even predicted inflation will halve to just 2% -- as soon as April 2024.

What do these predictions really mean for the housing market?

More importantly for readers of ContractorUK, what should contractors do if they’re looking to move home or remortgage from a sub-2% deal they took out 2-5 years ago? Let’s tackle those quandaries in three steps, starting with interest rates.

Interest rates: a downward trend set to continue

Following a swathe of New Year lender activity, UK lenders have slashed their mortgage interest rates to their lowest levels since Liz Truss’s 2022 mini-budget. On the surface, this is great news for borrowers. But it’s not as clear-cut as the headlines make out.

There are several reasons for this lenders’ ‘price war’, which exhibits a huge turnaround of strategy compared to this time last year.

Cast your mind back to early 2023. You couldn’t poke your head out of the window without an accusation of mortgage lenders profiteering from the skyrocketing BoE base rate flying by and giving you a buzz cut. How that’s changed in just 12 months.

Sub-4pc mortgages, fewer approvals, and a race to the unfound bottom

The number of mortgage completions per month last year fluctuated, but every month fell short of post-pandemic volumes. So, despite recovering in 2022, the mortgage market decline in 2023 has forced lenders to think again.

The easiest way for lenders to retain customers or gain new ones is to cut interest rates. This is what we’re seeing today, with several lenders now offering sub-4%, five-year fixed deals and sub-4.5%, two-year fixes.

And, as usually happens, once one lender begins cutting its rates, others follow. Lenders aren’t quite in a ‘race to the bottom,’ because no one’s sure where the bottom is! But swap rates and inflation can give us a sense of where we’re heading.

Swap rates and the BoE base rate

‘How can lenders offer sub-4% and 4.5% when the BoE base rate is still 5.25%?,’ I hear you ask. Good question.

Lenders have been securing finance for mortgages using ‘swap rates’. Swap rates are, in layman’s terms, prices at which future money is trading.

For many months, swap rates have been below the BoE base rate, enabling lenders to offer the deals we’re seeing now. But, if recent predictions about inflation are on the money, the BoE will be forced to reduce its base rate sooner than they’d hoped.

Depending on their profit margins, lenders may yet offer another round of mortgage cuts in the second half of 2024. We know they’re cutting their margins to offer the deals we’re seeing today. But there’s too much uncertainty to guarantee further cuts at this point.

Inflation: financial institutions’ opinion puts the cat among the pigeons

Towards the end of 2023, the price caps and the market price of fuel dropped, giving the UK a welcome drop in inflation. As we enter 2024, commentators are now referring to oil prices as in a ‘slump’. Good news all around, right?

On the back of those lower fuel prices, plus other factors, Oxford Economics, Investec and Deutsche Bank have all revised their forecast for inflation. By the summertime, all three institutions now predict that UK inflation will reach its fabled 2%. More good news, yeh?

Why all this means that we won’t see house prices plummet

In late 2023, Halifax forecasted house prices to fall by 2% to 4% in 2024.

But even at this early stage of the year, does that prediction hold water?

With the reduction of interest rates and lower inflation as outlined above, it means more disposable income in people’s pockets. This will rekindle buyer’s interest in the housing market as, theoretically, borrowers are less of a risk to lenders, so getting a mortgage should become easier. 

But (and it’s a big ‘but’), there’s still a massive shortage of housing stock across the UK. So, despite this (or because of, depending on your outlook), it’s still a vendor’s market, not a buyer’s.

Ask yourself: ‘Why would a homeowner reduce the price of their home when there’ll likely be a glut of people wanting to buy it, yet so few properties to choose from?’

Plus, with mortgages hopefully becoming slightly easier to get, vendors may feel tempted to hold out a little longer for the best price.

Much will depend on how long a vendor has been waiting to sell their home and their own mortgage situation. There’s no way to predict that, sadly.

My 2024 housing market predictions for contractors

First, let me clarify that I’m not a financial analyst. I own a mortgage and protection brokerage, this year being our 20th anniversary. But I do keep my finger on the pulse of market trends to be able to offer my opinion, should people ask for it.

So, I believe that the first half of 2024 will see the market remain somewhat subdued, property prices remaining broadly flat. Beyond that, most mortgage brokers expect the mortgage market to settle down with the potential BoE base rate reductions reigniting the housing market.

Even then, I struggle to see the number of mortgage completions reach the post-pandemic volumes of late 2021/2022.

Exceptions that prove the rule

Naturally, there’ll be nuances at local level. Hamptons’ analysts expect prices in the south-east to be rising by the end of 2024, with a strong bounce back in London. They also see scope for a revival of prime central London property as stronger global growth leads to higher international demand.

Conversely, in the north, Wales and Scotland, experts predict house prices to continue falling. So, saying that house prices will drop in 2024 is entirely subject to where you want to move to.

Experts at Rightmove also expect more action from ‘family movers’ in 2024. These are typically families looking for a larger home who may feel in a stronger position once the mortgage market settles in the second half of the year.

Again, will families be prepared to pay a premium for the right home in the right location? Historically, the answer is yes, so another argument against house prices dropping.

House price predictions: how long is a piece of string?

Attempting to forecast UK house prices for 2024 is a huge challenge. Everyone seems to have an opinion, albeit from different viewpoints. But let’s just look at the timeline.

On average, it takes five months for a property sale to go through. It takes even longer for house prices from those sales to appear in official statistics. That delay leaves economists, analysts and property experts with limited visibility, making it almost impossible to forecast house prices in real time.

If I had to look into my crystal ball, I’d say that there’ll be little difference this year from 2023. The lack of housing stock alone will keep prices roughly where they are. There are still too many variables, especially in a global context, to predict house prices in 2024 with any certainty.

What contractors on a SVR or with a fixed deal expiring in 2024 can do

If you’ve got a fixed-term deal about to expire or are already on your lender’s Standard Variable Rate (SVR), you have options.

Which option is right for you is, honestly, down to your specific circumstances. But do steel yourself: you will have to pay a higher interest rate than your current deal if you took it out before September 2022.

As a rule of thumb, I’d suggest talking to a broker and asking them to look for a two-year fixed deal. You can at least lock it in so you can budget for the next 18 months, then look for another deal six months before your new fixed term is due to expire.

If you’ve got room in your budget and have a less risk-averse attitude, you may want to suffer your lender’s SVR a while longer and wait to see where rates go should inflation reach the predicted 2% towards summer.

Or, you might consider a tracker rate mortgage. You’ll pay an agreed percentage above the base rate, so you benefit when the base rate drops.

Again, trackers are not right for everyone, as rates can go up as well as down. Before recommending this option, we’d need an initial (free) consultation with you to discuss possible suitable options.

(Blurry) property market outlook 2024…

It’s not our intention for our take on house prices, interest rates and inflation in 2024 to be ambiguous, and we’re sorry if it comes across as ‘it depends’. But the market is so dynamic that predictions are hard to get right. Especially now.

The reality is that so many homeowners this year face the new, daunting proposition of having to pay more for their remortgage. For many, it will be an entirely new experience.

With so much at stake, the only definitive recommendation I can issue is this -- talk to a broker who knows their onions. The best mortgage for you is entirely based on your ‘now’ and what you want from your ‘tomorrow.’ So, don’t put off until tomorrow what you can do today.