If you are planning to buy or sell a house, you will be interested to know what is likely to happen to house prices and whether now is a good time to move. Whether you already own a property or are a first-time buyer, an adjustment in house prices can be beneficial. A drop in price in the area you wish to buy in can save you money, whereas a rise in your current property's value means you can secure a good price and have more capital to invest in your next purchase.
House prices are determined by a number of factors, including:
- The overall health of the economy - The unemployment rate and wage growth both play a part in consumer confidence, which impacts how confident people are to move and how much they are willing to pay.
- Interest rates -The Bank of England sets the base interest rate level and, if it is relatively low, people can afford to spend more on a property as the cost of borrowing is lower. This tends to push house prices up. Conversely, once rates start going up, mortgages become more expensive and house prices tend to fall as fewer people opt to move.
- Supply and demand - Local house prices will be determined by how desirable a particular location is and how many similar properties are available. If, for example, a new housing development is completed, this can reduce the value of properties nearby as there is greater competition for buyers. Conversely, some properties will always command a premium because they are in a sought-after area where the housing stock is limited.
What has been happening to house prices?
There are a number of respected sources of data relating to house prices, including monthly indices that provide information on house price changes over the previous month and over the preceding 12 months. Below is a summary of each published index.
The UK House Price Index
The UK House Price Index is the most accurate of the various house price indices as it is calculated based on completed sales, both for cash sales and those with a mortgage. The wide-ranging data is sourced from HM Land Registry and other government sources. However, while it gives a very clear picture of what is going on in the housing market, there is a lag in the data being published. The latest data currently available relates to November 2023.
It shows that the average house price in the UK fell by 0.8% in November 2023. The annual house price change is at -2.1% in the 12 months to November 2023.
|UK House Price Index
Average house price
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Nationwide House Price Index
The Nationwide House Price Index is calculated based on its own data on mortgage approvals. House prices increased by 0.7% in January 2024, when compared with the previous month. The annual change in house prices currently stands at -0.2%.
Nationwide said "While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive. The most recent RICS survey suggests the decline in new buyer enquiries has halted, while there are tentative signs of a pickup in the number of properties coming onto the market."
|Nationwide House Price Index
Monthly change in house prices
Halifax House Price Index
The Halifax House Price Index is calculated from its own database of approximately 300,000 mortgage approvals. Recent data reveals that average house prices rose for the fourth month in a row with an average rise of 1.3% recorded in January, following a rise of 1.1% in December and 0.5% in November. January's figures reveal an annual change of +2.5%.
Halifax said "The recent reduction of mortgage rates from lenders as competition picks up, alongside fading inflationary pressures and a still-resilient labour market has contributed to increased confidence among buyers and sellers.This has resulted in a positive start to 2024’s housing market".
|Halifax House Price Index
Monthly change in house prices
Rightmove House Price Index
Unlike the other indices that are based on mortgage approval data or completed sales, the Rightmove House Price Index looks at the average asking prices for properties listed on the Rightmove portal. This is a good reflection of sellers' confidence but doesn't clearly demonstrate how many of those properties end up going under offer at a much lower price or, in fact, don't end up selling at all. Its most recent data shows that the average asking price rose 1.3% in January, following consecutive falls of 1.9% and 1.7% in December and November.
Rightmove said "After a stop-start market in 2023, the initial signs suggest a smoother year for movers in 2024. More new sellers are now entering the market, and with more confident pricing. While the increased level of buyer activity that we’re also seeing may justify some of this increased pricing confidence from sellers, it’s important that sellers who are keen to find a buyer don’t get carried away with New Year enthusiasm when setting their price expectations. Elevated mortgage rates and the wider cost-of-living squeeze are still limiting buyers’ spending power. Accurate and realistic pricing for their local area is the recipe for success for sellers looking to get moving in 2024, and it’s been proven that over-optimistic pricing makes a move much less likely".
|Rightmove House Price Index
Average asking price
What is driving the change in house prices?
The housing market has been tumultuous over the past 2 years, with the pandemic having a direct impact on house prices. Initially, there was a slump as the country entered into lockdown for the first time in March 2020 before a massive resurgence from June 2020, when society began opening up again. A key driver was the introduction of a temporary stamp duty holiday on 8 July 2020, which offered buyers a saving of up to £15,000 on their tax bill when purchasing a house. This acted as a stimulus, ironically driving house prices up by an average of £15,409 between June and November 2020, according to figures from the Halifax, in effect wiping out the stamp duty saving.
The main stamp duty holiday ended at the end of June 2021, with a tapering until the end of September 2021, during which time buyers could save a maximum £2,500 off their bill. There was a corresponding uptick in house prices in the run-up to the deadlines for the end of each of these phases and, overall, there was double-digit annual growth across 2021. This was bolstered by historically low mortgage rates, as well as the reintroduction of higher loan-to-value mortgage deals.
However, the mini-Budget presented by former Chancellor Kwasi Kwertang on 23rd September 2022 sent shock waves through the mortgage market resulting in a rapid increase in mortgage interest rates. The Monetary Policy Committee (MPC) have voted to keep rates at 5.25% in the last four meetings (September, November, December and February). Markets are predicting cuts to the Bank of England base rate later this year, with it expected to fall to around 4.73% by July 2024. It means average fixed-rate interest rate deals are likely to remain at around 5.5% to 6.5% until the middle of 2024. As well as tightening lending criteria mortgage lenders are also stress-testing mortgage applications assuming rates as high as 8%. Higher mortgage costs will likely mean that there will be fewer prospective purchasers able to secure a mortgage thus putting downward pressure on house prices. In 1992 the average house price fell by about 20% following a rapid rise in the Bank of England base rate. Also, bear in mind that the cost of living crisis will likely mean more people will fail lenders' affordability assessments going forward which will be another headwind for the property market.
Is now a good time to move house?
With the Bank of England opting to increase the base rate several times in recent meetings, borrowing has become more expensive, limiting the amount you can secure for your house purchase.
With house prices still at elevated levels, we could continue to see them trending downwards over the coming months, which, if you are a first-time buyer or moving to a new area, could save you money if you decide to wait. If, however, you are a mover and have to sell your current property, it may pay to make the most of the tail-end of this recent house price boom.
Anecdotally, estate agents are reporting there are still significant numbers of people looking to move with demand outstripping supply but this could change. This means buyers are having to remain quick-thinking and decisive when house-hunting.
How do I know what my property is worth?
While it is useful to consider the broader market trends for the UK, it's also important to work out what is happening in your local area if you are planning to buy or sell a property. There can be a great deal of variation in the price of a house on one street compared to the same style of house on an adjacent street, so it pays to do your homework. Good sources of information include:
- Property websites - Sites such as Rightmove and Zoopla have features that give you an estimate of what your house is worth based on its sales history and what other local properties have sold for. These tools are not completely accurate but give you a good starting point to work out how much you could reasonably expect to sell your house for
- Land registry data - It is possible to access the sold prices for all the properties in your local area, sorted by how long ago the property sold. This gives a good indication of what properties are actually selling for, compared with the asking prices that they are being marketed at.
- Estate agent - A good local agency with properties on its books similar to the one you are trying to sell will be able to give you the best idea of what you are likely to be able to sell your property for. It is a good rule of thumb to get valuations from a few different agents as there could be some variation in the valuations they provide. Read our article: How to find the best & cheapest local estate agent in seconds.