The UK housing market has been a topic of intense discussion and speculation throughout 2024. Despite early predictions of a significant downturn, recent data paints a more complex and nuanced picture.

From unexpected price increases to shifting interest rates and a challenging rental market, the landscape for homeowners, buyers, and renters continues to evolve. This article delves into the current state of house prices, interest rates, rental costs, and their implications for various stakeholders in the UK property market.

What's happening to house prices?

In January 2024, experts agreed to say that house prices were going to significantly drop due to ongoing inflation and high interest rates. However, industry leaders such as Savills have released data painting a very different picture. Overall, they expect a 2.5% growth in house prices in 2024.

The Land Registry gathered data showing that the average house price in the UK is £289,723 as of July 2024. This is 0.6% higher than in June 2024 and 2.2% higher than in July 2023.

House prices tend to go up in September compared to August as the market picks up after the holidays slump. However, according to data from Rightmove, house prices have gone up 0.8% in September 2024 compared to the previous month which is double the long-term average. Unlike the slow housing market we witnessed in 2023, activity has been increasing, even during the summer of 2024.

What's happening to interest rates?

To understand interest rates in the UK, it is important to look at the Bank of England’s base rate. It's the fundamental interest rate in the UK's economy, from which many other rates are derived. Changes in this rate can have wide-ranging effects on the cost of borrowing, returns on savings, and overall economic activity in the country.

In September, it was decided that the base rate would remain at 5%, after being held at 5.25% before August 2024. The next review and decision will be made public in November 2024. Experts predict that the base rate will be cut further.

If banks can set their interest rates independently, they tend to follow the BoE base rate as a guideline to remain competitive and in line with the wider market. This means that for now interest rates are not set to decrease. However, experts agree that cuts should happen from November onwards.

What's happening to rental costs?

In August 2024, the Office for National Statistics estimated that the average UK private rents have increased by 8.4% in the last 12 months. Unsurprisingly, London suffered the highest increase with rent inflation reaching 9.6%.

For many renters, repaying a mortgage would be the same, if not cheaper, than paying their rent. However, a key issue remains managing to save up enough money for a deposit to step onto the property ladder.

The number of landlords selling their properties is also on the rise which adds more stress to the rental market. Rightmove explains that 18% of properties now for sale were previously on the rental market, compared with 8% in 2010. This figure comes to 29% in London.

More and more landlords are choosing to sell their property than keep renting it out.

For the rest of the year, a key element likely to impact the rental market is the release of the autumn statement. This update provides information on the government’s budget within the current economic context. Chancellor Rachel Reeves is set to present Labour's first Budget in over a decade on 30 October 2024. The budget aims to address a £22 billion deficit in public finances through various initiatives.

Prime Minister Sir Keir Starmer has warned that the upcoming Budget may be challenging, hinting at potential impacts on landlords. Many suspect they will announce increases in capital gains and inheritance taxes which might push more landlords to sell their flats or houses to let, decreasing further the supply of rental properties available.

What's happening to the London housing market?

The average house price in London has increased by 0.6% in 2024 compared to the previous year. It now costs on average £523,134 for a buyer to purchase a London home. This modest increase suggests a relatively stable market for homebuyers, with prices continuing to rise but at a slower pace than in previous years. The figure of £523,134 highlights the ongoing challenge of affordability in the capital, as it remains significantly higher than average house prices in most other parts of the UK.

As of Q2 2024, Rightmove report that "London rents have also risen to a new record of £2,661, now 4% higher than last year (£2,567 monthly), with rent growth steadily slowing since the peak of 16% in 2022". This data reveals several important trends in the rental market. The new record high of £2,661 per month for London rents indicates that despite economic uncertainties, demand for rental properties in the capital remains strong. The 4% year-on-year increase, while significant, represents a notable deceleration compared to previous years. This suggests that while the market is still growing, it may be starting to stabilise.

What does it mean for first-time buyers?

First-time buyers are struggling more than other types of buyers to step onto the property ladder in those conditions. In January 2024, Zoopla pointed out the importance for first-time buyers to remain flexible when it comes to the location and sometimes even the size of the home they are looking to purchase.

It seems that FTBs have been paying attention. This group of buyers has managed to purchase their first home by being open to a wider range of locations and properties but also by taking out longer mortgages. In the first four months of 2024, the average mortgage duration was 31 years compared with 29 from 2017 to 2019, Savills reports.

The main issue faced by first-time buyers however remains the difficulty to save up enough money for a deposit. Many are having to move back with their family to avoid rental costs, while others benefit from financial help from their parents. Another way to combat the deposit issue can be to explore alternative ways to buy. Government-backed schemes such as Shared Ownership allow people to start by purchasing a share of the property, requiring a lower deposit than when buying outright. If you want to find out whether you can afford buying through Shared Ownership, you can use our affordability calculator below.