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Market Insight

Will 2023 go down as the bottom of the market?
Winter 2024

A more certain economic outlook and improved affordability should be the mix that gets Britain moving in 2024.

As the year begins, we seem to be at the bottom of the market. In the months to come, more people who sat on the sidelines in 2023 will decide that the moment is opportune to make a move.

The slowdown of 2023 had a more material effect on transactions than prices - which dropped rather than subsided. We estimate that one million homes changed hands - 18% fewer than in 2022. This was the lowest sales number since 2012.

We expect around 1.1m sales this year, marking a return to pre-Covid transaction levels. Demand began to pick up late last year as mortgage rates continued to fall.

The households that did move in 2023 were mostly driven by need. Others decided to sit tight, deterred by economic uncertainty, geopolitical tensions and successive interest rate rises in particular. But, despite cost of living pressures, there were few forced sellers.

Soaring fuel bills did, however, encourage one group to relocate. Downsizers became more active in the market. Some decided to sell their larger expensive-to-heat properties because they wanted to free up cash, or pay off the remaining balance on their mortgage.

First-time buyers were also more numerous than expected, accounting for 28% of sales, although the sharp increase in mortgage rates meant that it was cheaper to rent than buy for most of 2023. We expect this trend to reverse this year, as the repayments on a 90% LTV (loan-to-value) mortgage fall back below the rent on an equivalent property.

"Since household’s finances should feel a little less squeezed, we expect price falls to stabilise"

We also forecast an upsizer revival in 2024, although these buyers will not be the force they were during the post-Covid boom. In 2023, they were hampered by higher mortgage rates, unable to borrow the extra funds necessary to acquire a larger home. As a result, the prices of such properties have fallen more than other smaller homes.

We also expect the emergence of more opportunistic landlords, drawn by the growth in rents and cuts to savings account rates. They will be looking to acquire flats, particularly in London, as the prices of these properties have languished somewhat. However, buy-to-let will still be reserved for those with the deepest pockets since the cost of mortgage deals remains above its pre-2022 level.

The direction of prices this year will still partly depend on confidence - which is vulnerable to shifts in the economy and global events. But, since the average household’s fi nances should feel a little less squeezed, we expect price falls to stabilise.

By the final quarter of the year, prices should have stopped falling with the average price of a home at the end of 2024 forecast to be level with where it was at the end of 2023. Thanks to the improvement in sentiment, properties should find buyers faster, with fewer sellers obliged to cut their asking prices.

The country will probably go to the polls this year, with a general election almost certain to take place in the autumn. In the run-up to the vote, the Conservatives will be hoping to produce an economic boost to narrow the gap with Labour in the opinion polls.

We do not believe the election will have too much impact on mainstream markets this year, given Labour’s current lead in the polls. The economic policies of the two main parties are not a million miles apart. This limits the possibility of the kind of radical change that would discourage some households planning to move.

Nevertheless, we do envisage some cooling at the upper end of the market. More affluent households tend to be more discretionary buyers and sellers. They are also more concerned about change, having borne the brunt of recent tax reforms.

Labour’s plan to introduce VAT on private school fees is already a key issue. There is already more competition for homes within the catchment areas of outstanding state schools, driving up property values.

The average price of a detached home located near an outstanding secondary school rose by 3.6% last year. This compares with a 1.2% decline for homes near schools with poor ratings.

Looking further ahead, we expect a new house price cycle to begin in 2025 following falls in 2023 and a flat-lining 2024, regardless of which major party is in government.

On the assumption that the economy continues to strengthen, with inflation under control and interest rates heading downwards, we forecast that house prices should start to rise again. And history lessons suggest that it is London likely to be leading the way.

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