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What’s next for mortgages and house prices in 2024?

Mortgage rates have been falling in recent weeks, a glimpse of light at the end of the tunnel for the property market. But just how long will it take to get out into the sunshine?
House for sale

Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

We’ve seen big cuts in mortgage rates over the past few months.

At the end of July, average two-year fixed rates peaked at 6.86%, then fell to around 5.8% in early January. The new year has seen some chunky cuts from around half of lenders and they’re likely to keep going.

The market’s stopped pricing in rate rises and instead started pricing in cuts.

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After the surprise fall in inflation, markets were pricing in rate cuts as early as May, and even more through the rest of 2024. But, take this with a pinch of salt as everything the Bank of England has said so far has been about preparing to keep interest rates higher to bring inflation down to target.

There are some signs that this has already brought a little more life into the market. Mortgage approvals were up slightly in October, which bodes a little better for the spring.

However, we’re starting from a pretty low base, with sales in October down a fifth from a year earlier. So a bump from here won’t take us back to the heady heights of the property boom.

4.7%

drop in house prices

But we can’t get carried away, this is all a long way down the track, and there’s plenty of dark between now and then for both buyers and sellers.

This article isn’t personal advice. If you’re not sure what’s right for your circumstances, seek advice.

What could a weaker economy mean for property?

There’s a reasonable chance that economic forces mean that after a possible bump from lower mortgage rates, a boom might be much further off as we wrestle with an even tougher economic backdrop.

Economic growth is already stuttering, with Gross Domestic Product (GDP) falling in October. Tough times for businesses could put employment under pressure. The Office for Budget Responsibility (OBR) expects unemployment to rise from here and hit 4.6% in the middle of 2025 – when around 1.6 million people will be out of work.

It could also mean tougher decisions around pay. Pay rises and strong employment have both underpinned strength in the property market, and weakness in either could spell trouble.

As a result, this spring might not see the turnaround in fortunes that buyers and sellers are hoping for. And after any seasonal bump in early 2024, things might get worse again before they get better. The OBR expects to see property sales falling another 6.9% in the coming year – and prices to drop 4.7%.

Mortgage rates should eventually reach a tipping point, where buyers come back to the market, mortgage approvals pick up, sales rise and prices are stronger. But, this might not be until 2025.

So, while all eyes are trained on the light at the end of the tunnel, there’s still the risk the property market could stumble around a little next year, in the long wait for it to arrive.

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Written by
Sarah Coles
Sarah Coles
Head of Personal Finance

Sarah provides insight and analysis to the media on topics such as savings and financial planning, and co-presents HL's ‘Switch Your Money On' podcast.

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Article history
Published: 10th January 2024