Rising housing costs persist even with wage increases and interest rate reductions
The UK property market is exhibiting a sense of optimism, despite lingering concerns about the economy, according to industry experts. Matt Thompson, head of sales at Chestertons, and Verona Frankish, CEO of Yopa, both believe that buyers are returning with confidence to the market.
Improvements in mortgage market affordability and the government's new Mortgage Guarantee Scheme are expected to help maintain buyer activity and strengthen house prices. Housing affordability in the UK has been improving due to slower house price growth compared to wage growth and a decrease in mortgage rates.
Current trends and predictions for housing affordability in the UK over the next five years indicate a cautious recovery in prices, gradually easing mortgage rates, but persistent affordability challenges for buyers, especially first-time buyers. House prices are expected to slightly contract in 2024 by about 3%, primarily due to higher borrowing costs and inflation impacting demand.
From 2025 to 2028, average house prices are forecast to grow moderately by around 2.7% per year nationally, reflecting a recovery supported by increased home building and easing mortgage rates. London prices, after a slight fall in 2024, are forecast to rise by almost 14% cumulatively between 2025 and 2029, though growth is expected to be uneven across boroughs.
Mortgage rates, which had increased sharply due to inflation and central bank policies, are predicted to begin a gradual easing through the medium term. This is expected to alleviate borrowing costs and support price growth, but rates will likely remain higher than the ultra-low levels seen during the pandemic, continuing to constrain affordability.
Regarding first-time buyer deals, these are likely to remain pressured by overall affordability constraints. Institutional investments in build-to-rent projects and net-zero developments partially address supply issues but tend to focus on rental markets, which are predicted to see rent increases of roughly 3% annually in the medium term.
Robert Gardner, Nationwide's chief economist, stated that housing affordability has improved after a decline following the pandemic. The price of a typical UK home is currently around 5.75 times the average income, below the all-time high of 6.9 recorded in 2022 and the lowest in over a decade.
Pundits expect house prices to grow steadily throughout the year. The latest house price index from Nationwide indicates a 2.4% increase in house prices in the year to July. Many estate agents feel that the current market provides a "window of opportunity" with more properties up for sale.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, states that transactions are "holding together" on the ground. Marc von Grundherr, director of Benham and Reeves, adds that there is an "overarching air of positivity" in the property market.
Savills predicts that more relaxed mortgage lending rules could lead to a 25% increase in first-time buyer deals over the next five years. More buyers are expected to look to make their move, contributing to continued stability in house prices.
In summary, the UK housing market over the next five years is expected to stabilize with moderate house price growth supported by easing mortgage costs and some supply increases, but affordability pressures—especially for first-time buyers—will remain significant. Rental growth and regional disparities will also influence market dynamics, particularly in expensive areas like London where prices and rents remain high despite slower growth.
[1] Savills UK Housing Market Outlook 2022-2027 [2] Nationwide House Price Index July 2022 [3] London First Time Buyer Market Report 2022 [4] RICS UK Residential Market Survey Q2 2022
- The UK property market, despite lingering economic concerns, is displaying optimism, as supported by improved mortgage market affordability and the government's new Mortgage Guarantee Scheme, according to industry experts like Matt Thompson and Verona Frankish.
- Investing in real-estate, specifically housing-market, may present potential opportunities for personal-finance growth, considering the expected moderate house price growth, gradual easing of mortgage rates, and increasing property transactions, as indicated by reports such as the Savills UK Housing Market Outlook 2022-2027 and the Nationwide House Price Index July 2022.
- However, despite the anticipated recovery, the housing-market will face continual affordability challenges, particularly for first-time buyers, due to high borrowing costs, inflation, and persistent regional disparities in price and rent growth, as foreseen in the London First Time Buyer Market Report 2022 and the RICS UK Residential Market Survey Q2 2022.
