UK house prices have been on something of a journey over the past two years but finally appear to be back in positive territory, especially with the cost of borrowing dropping and mortgage rates being cut on an almost daily basis.
After hitting a record high in August 2022, house prices plummeted in the wake of former Prime Minister Liz Truss’s disastrous Mini Budget. Prospective buyers abandoned the housing market as interest rates on mortgages shot up, competition between lenders temporarily collapsed, and the value of cash deposits was eroded by record inflation.
Mortgage rates soared again in mid-2023 and also crept up during the spring of this year as markets questioned the UK’s ability to bring inflation down. There was also uncertainty about when the Bank of England would halt its cycle of base rate hikes – a key factor in setting mortgage rates.
Sign up to Money Morning
Don’t miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don’t miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
But now, there are hopes of a boost in homebuyer demand as interest rates are in a downward cycle. The Bank of England announced a cut on 1 August for the first time since March 2020, reducing the base rate from 5.25% to 5%. While rates were held in September, further cuts are expected at the final two bank meetings of 2024.
Some mortgage rates have already fallen below 4%, which could boost demand for home loans – potentially pushing up house prices. With a new Labour government in power and promises of housebuilding targets and a Freedom to Buy scheme for first-time buyers, the housing market could be set for another few interesting years.
So, what’s happening to UK house prices now – and what are the indicators we use to determine how they are changing?
Are sold house prices falling in the UK?
Sold house prices are the ultimate indication of what’s been happening in the UK property market. We will explore how each house price index (HPI) measures them further down in this article.
The major drawback of these house price yardsticks is that the transactions they measure may have been agreed several months in the past. So, the figures may not be a true indication of current market conditions. Given HPIs showing sold prices often rely on large, varied datasets, they also tend to take about a month to publish.
Average prices have been recovering from their poor start to 2024 amid high inflation and pricey mortgages.
The latest Nationwide House Price Index suggests the recent August interest rate cut and falling mortgage rates may be feeding into the property market.
Average house prices rose by 3.2% annually in September, according to the building society – the highest rate since November 2022. Values rose by 0.7% on a monthly basis after falling 0.2% in August.
It comes after the Halifax HPI for August also showed there was a slight blip in the property market. The lender found the rate of monthly growth fell from 0.9% to 0.3% between July and August. Despite this, the rate of yearly growth surged to 4.3% – the highest annual increase Halifax said it had seen since November 2022.
According to Zoopla’s latest release, we are still seeing a buyer’s market. The property website found that almost a fifth of the homes being listed for sale had had to reduce their asking price by more than 5%. It added that a glut of supply could keep house price inflation in check going into the New Year – despite buyer demand rising 26% and mortgage rates coming down.
Arguably the most comprehensive HPI is produced by the UK’s official statisticians at the Office for National Statistics (ONS). Using data from HM Land Registry – the public body that records all property sale completions in England and Wales – plus equivalent data from Scotland and Northern Ireland, the ONS is able to show exactly how much properties sold for in a given month.
As the datasets the ONS uses are so large, we usually get statistics around two months after the time period they were gathered from. The figures we see also get revised at least once after their initial release as more data becomes available. It means average house prices and property inflation can rise or fall from the estimates the ONS initially provides us with.
The most recent month for which we have ONS data was July, when house prices rose 2.2% annually. This marked a slowing in the rate of growth compared to June (+2.7%), with month-on-month seasonally-adjusted data showing that there had been a slight drop in average prices. You can see how prices are changing in your area with the ONS house prices tool.
Are property asking prices going up?
Asking prices are a useful barometer for market sentiment as it currently stands. These snapshots tend to be published only a matter of weeks after the data was recorded, and refer to prices as they were then rather than months in the past. Of course, the problem with these snapshots is that asking prices don’t necessarily translate into sold prices.
The latest Rightmove HPI – covering asking prices – showed the August interest rate cut has boosted market confidence as sellers look to take advantage of rising demand due to the lower cost of borrowing.
The property website’s latest figures for September shows the average price of a property coming to the market for sale has increased by 0.8% this month, rising 1.2% annually. It was a larger rise than usual for this time of year and puts the average UK asking price at £370,759.
Other surveys give us an indication of market sentiment without asking prices. For example, the Royal Institution of Chartered Surveyors (RICS) uses data gathered from its members to track market activity each month.
Its most recent set of findings for the month of August found buyer numbers rose at their fastest rate for three years, with sales agreed and the number of properties being listed also increasing. Estate agents and surveyors also expect further growth in the property market as we head into the final quarter of the year.
Will house prices rise in 2024?
After two years of big ups and downs, reading the future direction of house prices has been extremely difficult for analysts. The kremlinology of analysing what the Bank of England will do next, and uncertainty over what will happen to inflation – particularly against a backdrop of global instability – have meant things can quickly change, soon leaving predictions looking out-of-date.
Despite an unexpected dip in house prices in the spring – a result of the slight increase in mortgage rates – some experts are predicting that the housing market will grow over the course of 2024.
This has been helped by falling swap rates as the markets are already pricing in rate cuts. Much of the future direction of house prices depends on what happens to mortgage rates.
Major estate agency and property services firm Savills is among those looking positively at the remainder of the year. In its latest five-year outlook for house prices, it said it expects the average home to see a 2.5% increase in value over the course of the year. This outlook marked an improvement on its previous forecast (published in November 2023), which expected a 3% fall in value this year.
“Capacity for house price growth will remain limited until there is a more significant reduction in the cost of debt,” says Emily Williams, director of research for Savills. She says the August rate cut is a “clear signal” to the market that the Bank feels it has turned a corner in the battle against inflation, “and it should give most buyers and sellers confidence that the market will improve as we head into 2025”.
Fellow estate agency Fine & Country has predicted an autumn upswing this year. Its managing director Nicky Stevenson says: “As the seasons change, we usually observe an uptick in activity.
“The supply of homes for sale now stands at a seven-year high, with an average of 33 homes per agent, giving buyers more choice. This increased supply is expected to keep house price inflation under control throughout 2024 and into 2025. Despite strong earnings growth, elevated mortgage rates mean that buyers remain price sensitive and modest levels of house price growth will help affordability rebalance further.”
Meanwhile, Rightmove has revised its house price predictions up by two percentage points since the end of 2023. In light of the Bank of England’s most recent base rate cut, its director of property science, Tim Bannister, said: “The reaction from home-movers to what is hopefully only the first of several rate cuts over the next year or two, combined with other positive data and trends, has led us to raise our price prediction for the year.
“We now expect new seller prices to rise marginally by 1% over the whole of 2024. This is a relatively small revision from our original prediction of a 1% fall in prices over the year.”
How are house prices measured?
All of the house price indices (HPIs) measure the property market in different ways. Here’s an outline of how each of them work.
Nationwide House Price Index
The Nationwide HPI has been in operation since 1952. It is based on the lender’s valuations of properties at the mortgage approval stage – a sales price figure that can change as the transaction moves through the system, but is likely to be close to the final sold price.
The building society’s index is ‘mix-adjusted’. What this term means is that it tracks a representative UK home by applying a relative weight to each type of property characteristic. For example, a three-bed semi-detached.
A statistical process called ‘hedonic regression’ is then applied to “relate observed combinations of these characteristics to the house purchase price”, Nationwide says. This stops the HPI from displaying any price disparities caused by different types of property being sold each month. This HPI gets published at the start of every month.
Halifax HPI
Halifax’s HPI uses a dataset that goes back to 1983. Similarly to the Nationwide index, it’s based on the bank’s valuation of a home at the mortgage approval stage. A standardised house price is calculated using this data.
Property price movements are then analysed over time on a like-for-like basis. The lender’s HPI is usually published in the first week of every calendar month.
Zoopla HPI
The Zoopla HPI claims to be the most comprehensive index available. It uses sold house prices, mortgage valuations, and data for agreed sales to provide as holistic a picture of the market as possible. This price data normally comes out on a slightly longer time lag than other HPIs.
The property listing website also gathers information on the number of days it takes to sell a home, from the initial listing to when the property goes under offer. It also gives figures on how many listings and buyers there are. This set of information is slightly more up-to-date, coming out only about 10 days after the four-week data period has ended.
Office for National Statistics/Land Registry HPI
The UK’s official HPI uses property sales data that’s been gathered by HM Land Registry, the Registers of Scotland and the Land and Property Services Northern Ireland. As with the Nationwide HPI, it uses hedonic regression. But, unlike that HPI – and those of all the other organisations in this article – it captures all of the transactions that have taken place in the UK.
While this means it provides a broader view of the UK housing market, the ONS HPI has a time lag of at least two months due to how long it takes to process submissions from conveyancers to the Land Registry after the completion stage. The sheer size of the dataset means it also goes through at least one revision after it’s published, for example, to take account of seasonal effects.
Rightmove HPI
Rightmove’s HPI differs from the others in that it is based solely on asking prices. It uses 95% of the properties it lists for sale on its website (excluding those in inner London) to measure seller sentiment at the very first stage of the sales process.
These statistics are then released about 10 days after the end of the four-week data period they have come from. It means the figures show seller trends almost as they happen. Handily, Rightmove also measures discounting and the speed at which properties sell.
But given the HPI only includes asking prices, it is highly exposed to the week-by-week volatility of the property market. There is also the fact that not all listed homes sell, with some being withdrawn and relisted at a later date. So, the HPI cannot be seen as a reliable indicator of overall market conditions.
UK Residential Market Survey by RICS
The UK Residential Market Survey by the Royal Institution of Chartered Surveyors (RICS) is very different to all of the HPIs on this list. Rather than measuring house prices, it’s a monthly poll of chartered surveyors operating in the residential sales and lettings markets. As such, it is an indicator of property market sentiment.
RICS measures the percentage of surveyors reporting house price increases versus declines, and how many of them report more buyer instructions (a sign that a transaction is taking place) versus fewer. It therefore serves as an indicator of current and future market conditions in the UK.
The surveyors who take part are asked 18 questions on various metrics, such as sales, enquiries and listings, and are required to report whether these have increased, remained the same or decreased. A positive net balance indicates that there is more activity taking place, while a negative net balance suggests that the housing market is weakening.
