Leading estate agent Knight Frank has revised its earlier prediction of a 4% decline in UK house prices by the end of 2024, now forecasting a 3% rise. The about-face is attributed to

widespread cuts in mortgage rates, with over 40 lenders implementing reductions since January 1.

In October 2023, Knight Frank had anticipated a 4% fall in prices, but changing market dynamics, particularly a significant drop in mortgage rates, prompted the adjustment. The agency also cited shifting expectations regarding the Bank of England's base rate in the coming year.

The prediction for a 3% increase in average UK house prices is a stark turnaround from the previous projection of a decline. The agency highlighted the financial markets' revised outlook, noting that, by the end of the last week, expectations of five interest rate cuts of 0.25% each had replaced the earlier forecast of a single cut by the end of 2024.

The primary driver for this shift in sentiment is the faster-than-expected decline in inflation. As a response, mortgage lenders have significantly reduced rates in recent weeks, aiming to attract business in a low-volume market. Notably, the best five-year fixed-rate mortgage has dropped to below 4%, made possible by a one-percentage-point fall in the five-year swap rate during the final quarter of 2023.

Since the beginning of the year, 44 lenders have cut rates on various mortgage products. The best available five-year fixed deal now stands at 3.84%, while the top two-year fixed-rate is at 4.24%. However, the market is seeing rapid changes, with some mortgage deals available for only a few days, as observed with certain offerings from the Co-operative Bank.

Knight Frank also pointed to recent house price indexes, such as Halifax reporting a 1.7% increase in 2023 and Nationwide posting a more positive fall of 1.8%, contrary to the 5% decline predicted in August. Despite the overall optimistic outlook, Knight Frank expects London, one of its key markets, to experience a more modest 2% rise in house prices in 2024.

Looking ahead, Knight Frank predicts a continued upward trajectory, forecasting a 3% increase in 2025, followed by rises of 4% in 2026, 5% in 2027, and 4% in 2028. Cumulatively, this projects a 20.25% increase in house prices five years from now. The agency acknowledges potential influencing factors, including the outcome of the next General Election and the ongoing conflict in the Red Sea, which could impact global inflation.