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The UK housing market is struggling to regain momentum after a record low number of sales last year, as higher borrowing costs and political uncertainty keep the brakes on transactions.
Forecasts show UK homes sales are on track to rise this year, but remain below the long-run pre-pandemic average of 1.2mn deals a year. Savills forecast 1.04mn sales in 2024, with Hamptons and Zoopla expecting 1.1mn.
“The direction of mortgage rates has been key to buyer decisions over the past two years, and decreased monthly mortgage costs are now feeding through into improved confidence among prospective buyers,” said Lucian Cook, head of residential research at Savills.
The Bank of England has begun to lower its benchmark interest rate from the 16-year high of 5.25 per cent, where it stayed for much of 2023. It cut rates to 4.75 per cent this week following a quarter-point reduction in August.
While mortgage costs have declined they have plateaued at about 4 per cent on fixed-rate deals for buyers — with some rates drifting higher in recent weeks.
The number of home sales is an important sign of confidence in the housing market and wider economy, and influences how many new homes commercial housebuilders will bring to market at a time of severe supply shortages.
Sales in more expensive markets such as London, the south-east and eastern England have fallen as much as 30 per cent, compared with the decade average before the pandemic.
Relatively high interest rates in recent years have meant a slower rebound in sales, particularly since house prices have not fallen as sharply as many analysts predicted during the market downturn.
House prices are still hovering around their 2022 peak in nominal terms, according to different gauges, having fallen about 10 per cent on an inflation-adjusted basis. Prices are forecast to end 2024 moderately higher, with Savills putting the probable gain at 3 per cent and Zoopla at 2 per cent.
First-time buyers are forecast to make up the biggest cohort of buyers, at just over a third, according to Zoopla. Renters who can save a large enough deposit, or get money from family, are now often better off buying than renting given the record increases in rents.
“The rapid growth in rents and the decline in mortgage rates have shifted the renting vs buying dynamics and supported more [first-time] purchases,” said Richard Donnell, Zoopla research director. Average mortgage costs for a typical UK first-time buyer home are 17 per cent cheaper than rent, Zoopla reported.
Other potential buyers, who do not have strong reasons to move this year, have been put off by a series of big political events, including significant elections in the UK and US and last month’s UK Budget. With those events now out of the way, analysts say borrowing costs will be the key driver of how fast the market recovers.
The number of mortgage approvals hit a two-year high in September, as more buyers prepared to jump into the market.
The government’s decision to let temporary tax breaks on stamp duty expire in April could prompt some buyers to try to race through their transactions. Zoopla said there had been an uptick in inquiries for properties advertised as “chain free”, since they are typically quicker to buy.
“The changes to stamp duty might provide a modest boost to transaction numbers in the first quarter of the year,” said Aneisha Beveridge, head of research at Hamptons, especially for first-time buyers who could save up to £11,250. But she said there was not likely to be a “widespread rush”.
