Optimism on the rise as year begins on a high

Mortgage rate falls were always on the cards for the start of the year, but I’m not sure anyone expected the current level of confidence surrounding the housing market.

Just three weeks into 2024 and we have already seen Knight Frank positively revise the market forecast it made only in October, and I expect it will not be the only one to do so before Q1 is out.

Instead of a 4% house price fall this year, it is now predicting gains of 3% - quite a turnaround in sentiment in only three months.

Looking ahead, it forecasts house prices will rise by another 3% in 2025, 4% in 2026, 5% in 2027 and 4% in 2028 - resulting in five-year cumulative growth of 20.5%.

It also anticipates a double-digit percentage increase in sales volumes this year compared to 2023, on the back of the 10% annual increase in mortgage approvals in November.

It attributes the shift in its overall forecast to the improved market conditions over the past three months. Back in October, when it first made its forecast, the financial markets were pricing in a single interest rate cut of 0.25% by the end of 2024, in comparison with the current day predictions of five interest rate cuts during the coming year.

The main driver for its revised outlook is the larger than anticipated decline in inflation we have seen and the subsequent series of rate cuts by lenders.

Our own business also reflects more of that recent, wider positive market sentiment, with a clear uptick in house purchase surveys this month compared to last January.

As Knight Frank highlights, however, it is not a done deal — the ongoing conflict in the Red Sea and the threat it presents for higher UK inflation potentially poses a risk. As does the timing of the General Election, with any instability in Government generally not good for the housing market, it points out.

History tells us the market generally experiences a reduction in enquiries and volume leading up to an election and a surge afterwards. If former chancellor George Osborne is correct however and we are not going to see a GE until November 14, this might work in the market’s favour.

A November election would also allow for potential first-time buyer help or some other form of housing incentive in not only the March Budget but also possibly another Autumn Statement too.

On the flip side, however, it is worth remembering that there are still around 1.4 million borrowers whose rates are due to mature this year, and they will find themselves moving onto substantially higher rates, which may dampen buyer appetite.

Nevertheless, the latest market buzz seems somewhat different to the typical January uplift.

Since Christmas, Rightmove has seen nine of its ten busiest days on record for people getting a Mortgage in Principle, with the number of sales agreed in the first week of 2024 20% higher than the first week of 2023.

The number of new properties coming onto the market was also 15% higher than in the same period last year, with buyer demand in the first week of 2024 5% higher year-on-year.

Not only this, but the average price of property coming onto the market rose by 1.3% month-on-month in January, the largest December to January increase since 2020 and more than double the 20-year average of +0.6%.

While it’s only the beginning of the year, all signs are promising. Hopefully, this indicates a positive and more stable year ahead, with the possibility of the worst of the market volatility behind us.