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House price forecast


Interest rates will continue to determine the tempo of the market. But, as rates start to move downwards, this should draw a line under 2023 house price falls.
House prices will fall by only 2.5% in nominal terms between 2023 and 2024. But the increase in inflation means that, in real terms, there will have been a 9.9% decline in prices.
A new property cycle will begin in 2025. House prices will start to recover, with London leading the way.


This has been a challenging year for the housing market. The rise in interest rates happened more rapidly than expected and households have also been hit with painful increases to the cost of living. Caught off guard by these shocks, many homeowners have paused plans to relocate. As a result, transaction numbers have declined more sharply than the level of house prices. We expect transactions to continue to bear the brunt of the slowdown.

The impact of the higher cost of borrowing on house prices is not clear-cut. For example, the house price indices, such as Nationwide and Halifax which are based on mortgage approvals, showed annual price falls of up to 5%, in recent months. But these declines reflect borrowers who have been harder hit by higher rates.

The Office for National Statistics (ONS) index tracks all completed sales, whether mortgaged or in cash. This index, which is the basis of our forecasts, is yet to record year on-year price falls. The latest set of figures showed a 2.1% increase in the year to July. There is, however, a lag between a sale being agreed and its completion. This means that the sales shown in the ONS July data were likely agreed during the first three months of the year when mortgage rates were falling from their highs in the wake of the 2022 Budget.

Additionally, the methodology of the ONS index has been changed to reflect last year’s sales, with a stronger weighting being given to houses rather than flats. This will, somewhat artificially support the average price for 2023. Nevertheless, the index does indicate a slowdown in prices, with a decline of 2.2% since the peak in November 2022. In reality though, it’s likely that on an unadjusted basis prices will have fallen a little more.

What is clear from all the leading indices is that prices have not plummeted as they did during the 2008 financial crisis. We think there are several reasons for this. The labour market is strong and forced sales, which were the key catalyst for the financial crisis slump, have been limited by the tighter stress testing of mortgage applicants and substantial levels of housing equity: 54% of homeowners in England own their property outright.

"The likelihood of a real terms fall this year is one of the reasons why we do not expect another decrease in cash terms in 2024, particularly if mortgage rates continue to decline"

These conditions have lessened the Bank of England’s ability to temper inflation quickly through rate rises. But, while the market this year has been driven by buyers who can afford to move, particularly those with cash, some households have been priced out by higher rates.

Mortgage rates probably peaked in July 2023. Sales agreed around this period will be recorded in the ONS data for the final quarter of this year. This is why we expect price growth, as shown in this index to continue slowing over the coming months, with the average property in Great Britain forecast to cost 2.5% less than in the final quarter of 2022.

Our assessment is that this slowdown is more akin to the U-shaped downturn of the early 1990s than the V-shaped crash in 2008 and the subsequent rapid recovery from the slump. However, in real terms (adjusted for inflation) the decline for the year is likely to be a fairly significant 7.4%. This compares to real terms falls of 10.6% and 16.5% in 1990 and 2008 respectively. The likelihood of a real terms fall this year is one of the reasons why we do not expect another decrease in cash terms in 2024, particularly if mortgage rates continue to decline.

The regions in the South of England, where affordability is most stretched, will see the biggest price falls this year. Wales, which has seen some of the strongest price growth over the last few years, will also see a larger than average decline. London prices are likely to fall by a more limited 2.5%. Growth in this region has been lower than that elsewhere over the past five years, meaning there has been less froth to come off.


Once again, mortgage rates are likely to be the primary driver of price performance in 2024. The big question is whether the Bank of England (BoE) has raised rates by enough to tame inflation while avoiding a recession. And, if this is so, will the Bank cut rates in 2024?

The BoE’s latest economic forecasts provide grounds for optimism: inflation is slowing and the UK should avoid economic recession next year. Unemployment is projected to tick up a little, but it is likely to remain low historically, reducing the chances of households falling into mortgage arrears. As such, their attention is now turning to wage growth which is running hot. This suggests that inflationary pressures have become embedded and that the tight labour market is enabling higher wage demands. If this is the case, rates may have to stay higher for longer.

But if the Bank’s forecast is correct, wage growth will be 3.5% in 2024, against the current 8.2%. Since inflation is expected to cool to 2.5% by the end of next year, the cost of living squeeze is set to reverse, easing the pressure on household finances.

At present, the financial markets expect the base rate to peak at 5.75% later this year, and to remain there until the summer of 2024. At this point, the markets expect the base rate to begin to fall, ending the year at about 5.3%.

Pre-empting this move, mortgage rates are likely to move downwards more rapidly, declining over the course of the year. Assuming the current financial market base rate forecasts are correct, this would mean that the average two year fixed mortgage rate would fall to around 5.4% by the end of 2024. If this is the case, then we expect 0% annual house price growth across Great Britain in Q4 2024, assuming no other major shocks to the economy. However, this would still represent a 9.9% price fall in real terms since the end of 2022.

Interest rates above 5% will be painful for some households. But more economic stability and improved affordability should mean that some people who have delayed relocation in 2023 will decide to proceed. We also cannot see much improvement in the supply of new housing, given the pressures facing housebuilders which should support prices.

That said, political uncertainty could be heightened as a general election may take place towards the end of 2024. With two fairly centrist leaders of the two main political parties, an election is unlikely to have a significant bearing on housing market activity, although the prime sector may be a little more fragile. Over the past eight years, major political events have had less impact on prices and transactions than was the pattern in the past. Instead, affordability will be the key driver in 2024.

House prices in the South of England are set to return to growth by the end of 2024. But price falls may continue in the North. We forecast that growth will be strongest in the East, South East of England and London as lower mortgage rates have the potential to create a bigger bounce-back.

We expect London prices to rise by 1.5% by the final quarter of 2024. This recovery will be powered by the more affordable areas which will be targeted by buyers seeking space. As global economies revive, there is also a potential upside for prices in Prime Central London after a sluggish few years. But this sector is typically most sensitive to political change – especially if higher taxation for more expensive, overseas-owned or second homes were to be introduced. There was strong price growth in the North West, Yorkshire & Humber, Wales and Scotland between 2017 and 2022. The price falls that began in these regions in 2023 seem set to continue.


Not so long ago, the uncertainty created by general elections would cause many households to put on hold a decision to move. But have past decade’s political ups and downs, including Brexit and the pandemic, made people slightly more comfortable with uncertainty?

We think so.

The main reason why we do not expect the general election to have much bearing on the market is the stance of the two main parties: both are pitching strongly for the centre ground. This limits the likelihood of radical change.

Labour may clamp down more harshly on the ownership of second homes. But the Conservatives have already introduced measures in this area, and further proposals are in the pipeline. We also discern signs that both parties are more aware of the role that private landlords play in the rental market. This could lower the risk of more buy-to-let regulation.

Any change of government is more likely to be felt at the upper end of the market, where there could be a threat of more taxation – and where discretionary moves tend to be confidence-driven.


After two years of real-term house price falls, we expect prices to return to growth in 2025. Further rate cuts should provide a stimulus, with the Bank of England eager to prevent inflation undershooting its 2% target. By the end of 2025, the Bank forecasts that inflation will fall back to 1.5%, with financial markets expecting the base rate to settle at around 4.6%. These conditions mean that the cost of the average two-year fixed-rate mortgage could fall to just below 5%.

Against this backdrop, we expect house prices to rise by 3.0% across Great Britain by the end of 2025, returning them near their 2022 peak. However, there is also a chance that the Bank could be forced to order large base rate cuts to swerve a period of deflation that could be the delayed result of higher rates. This would put more downward pressure on the cost of mortgages, increasing the potential for a more substantial recovery with stronger house price growth.

"House prices in the South of England are set to return to growth by the end of 2024"

After two sluggish years, lower mortgage rates should encourage more moves among those who have been put off or priced out. This recovery is likely to be driven by less wealthy first-time buyers and upsizers, the groups who have been most restricted by affordability and higher rates.

2025 is also likely to be the year when a new housing market cycle begins. The pattern of past cycles suggests that London will lead the way, with price growth of 5.0%, outperforming all other regions for the first time since 2015. Lower mortgage rates will have a disproportionate effect on the market in London, as a higher share of homeowners in the city have a mortgage and they tend to borrow larger multiples of their income. But the easing of affordability pressures should mean a return to growth in all regions, although political risks could cast a shadow over Prime Central London.


All mortgaged households will be feeling the impact of higher mortgages by 2026, the only exception being those who opted for five-year fixed-rate deals at the start of 2022.

Higher repayments will be painful, but some of the blow will be softened by real terms increases in earnings. As the cost of living squeeze eases, some households will likely begin to build up savings to reduce the size of their mortgage when they come to refinance. Meanwhile, those close to the end of a two-year fixed-rate deal are likely to be able to remortgage at a lower rate. The expectation is that the cost of a two-year fix will fall to around 4.75%, which if current financial market projections prove correct, is likely to be around the new normal.

We think this will fuel price growth of 5.0% across Great Britain by the final quarter of the year, with London leading the pack with an increase of 7.5%. By the end of 2026, we forecast that the average house price in Great Britain will be 5.5% higher than in the final quarter of 2022. However, taking inflation into account, this turns into a real terms decline of 5%.

Between the end of 2022 and the end of 2026, prices in London will have grown at twice the rate elsewhere. But prices in Wales are likely to remain unchanged, closely followed by the North West and Yorkshire & Humberside with 1.5% growth.


1. Persistent inflation and wage growth mean rates have to be raised again in late 2023 and remain at elevated levels for longer.

2. Weaker economic prospects and deeper house price falls make lenders more cautious and more likely to withdraw high LTV lending.

3. Higher rates for longer broaden inequality in the housing market between renters and homeowners. Even if house prices fall marginally, it remains hard for first-time buyers to meet the affordability criteria to borrow at higher mortgage rates.
1. Inflation and wage growth begin to decline faster than anticipated, forcing the Bank of England to cut rates sooner and more sharply.

2. Strong real income growth will ease affordability, for both those remortgaging and moving.

3. Real income growth and higher deposit rates help more first-time buyers to buy without the Bank of Mum and Dad. Some form of government support likely.

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