House price outlook


Gráinne Gilmore is Director of Research and Insight at Cluttons, the property consultancy, examining all aspects of residential and commercial property markets, as well as infrastructure. Before this she held positions at Zoopla as Head of Research and at Knight Frank where she was Head of UK Residential Research, leading the team and producing insights on all aspects of UK sales, lettings, residential development and the specialist BTR, student and later living housing sectors.

Gráinne started her career at The Times, where she spent 10 years as a finance and economics journalist.

House price outlook

The short and the long of it

As all of us connected to the real estate industry know, when you’re out and about the most common follow-up question to “what do you do?” is “so what’s going to happen to house prices?”. Given the rapidly changing economic and fiscal picture, my quick response has been something like “it depends where you are, but prices will start to ease back after some very strong growth – it’s a more challenging market now than the last few years, but not as downbeat as we expected last October.”

This is the short answer. Only the bravest would embark on a longer answer at a social occasion, but there is value in putting the current market conditions in context, helping us understand what’s driving the market at present, and what that means for the housing market outlook.

The economic backdrop has been changing over the last few months. Economists are now split on whether a recession is on the cards, but even so the outlook is not rosy – there will be limited economic growth this year, and households are still facing higher living costs. There is also some uncertainty around whether the shudders from the banking sector will remain contained, or spill over into a larger issue which could impact the wider economy.

Inflation is expected to fall rapidly this year, but there was a wobble when official data showed that it ticked up again in February. This will have provided more cause for an 11th consecutive interest rate rise by the Bank of England’s Monetary Policy Committee in March, taking the base rate to a 14-year high of 4.25%.

Higher base rates signal higher mortgage rates, and buyers and homeowners coming to the end of fixed-rate deals have absorbed a four percentage point jump in the cost of home loans since the start of last year. For those of us who remember high single digit and even double-digit mortgage rates in the 1990s and early 2000s, this rise might still look modest. But the stretch in the affordability of housing in the UK since then means that even smaller rises in mortgage rates have a larger impact on budgets than 20 or 30 years ago.

The housing market between Q3 2020 and Q3 2022 could not be described as a ‘normal’ market. Super-charged might be a better word, fuelled by lockdowns, working from home and the stamp duty holiday. This resulted in sharp rises in prices, especially for houses with outside space.

Buyer demand has fallen back since then. But when you compare it with demand in 2018 and 2019 it matches up, signalling that the market has moved back to pre-pandemic norms for now. Sales activity is also more in line with pre-pandemic trends, with deals quicker to move where there is negotiation on both sides around pricing. The latest data from Zoopla signals the market is in line for just over half a million transactions in H1, around 40,000 fewer than 2019 levels, but significantly higher than levels after the global financial crisis.

Nationwide’s latest house price data shows that the average UK house price is already down 3.1% on the year – and Cluttons are forecasting an 8% decline in mainstream prices this year. Even so, most sellers will still be in the black when they move, given the strong rise in values in recent years.

One of the exceptions to these trends was city centre flats which lagged the wider trends as the focus was on access to outside space. However, demand is now swinging back into these markets, with some buyers seeing value.

As we gear up for the Bank of England’s next base rate decision, it’s worth noting that this will not necessarily translate directly into higher rates as the money-market rates which determine fixed-rate home loan pricing have been falling in recent months, in some part reflecting the resumption of political stability. This means the impact of the latest rate rise was muted, and the same could happen with any future rise, barring any surprises.

So, in short: “depends where you are, more challenging conditions and prices will fall back a bit, but more in line with markets before the pandemic”.