British home prices are projected to see modest gains this year, with more significant increases outpacing overall inflation in the next two years, according to housing
market specialists polled by Reuters. These gains are supported by anticipated reductions in borrowing costs and a persistent shortage of supply.
Home prices are predicted to rise by 1.8% in 2024, a rate that will be outpaced by wage growth. Coupled with an expected decrease in mortgage rates, all 19 respondents to an additional question indicated that purchasing affordability for first-time buyers would improve over the coming year.
“Stable house prices combined with real income growth should aid affordability this year,” noted Aneisha Beveridge, head of research at estate agency Hamptons.
While prospective buyers may find it easier to finance a purchase, the supply of homes remains a significant issue, particularly for entry-level properties. All 17 specialists responding to another question stated that the supply of affordable homes would fall short of demand over the next two to three years, with 11 predicting it would fall far short.
“Construction is throttled by a lack of positive sentiment among developers. They will only build again when there are sure signs of market and political stability,” said property consultant Russell Quirk.
Earlier this year, major housebuilders reduced their building targets. Persimmon expressed confidence for the rest of 2024, and Taylor Wimpey reported an improvement in its sales rate, but both companies kept their building targets unchanged.
The government should play a larger role in improving affordability, according to 13 of 16 respondents to an extra question. Suggestions included reducing housing taxes, encouraging office conversions, loosening planning restrictions, and expanding shared equity initiatives.
Prime Minister Rishi Sunak recently called a national election for July 4 and is trailing Keir Starmer’s Labour Party in the polls. Neither party has released their manifestos yet, and some regular contributors declined to participate in the Reuters poll this quarter.
“With little consensus about how to best resolve the housing crisis, it is likely that, even under a new Labour government, the gap between supply and demand will continue to widen for the foreseeable future,” said David Rees at estate agency Chestertons.
Home prices are expected to rise by 1.8% this year, 3.1% next year, and 4.0% in 2026, according to median forecasts in the May 9-29 poll of 22 specialists. The 2024 forecasts ranged from a 4.0% drop to a 4.0% increase.
In a February poll, the respective annual forecasts were for no change, 3.0%, and 4.0%.
This is a significant decline from the pandemic boom when home prices soared 25% between February 2020 and September 2022 as buyers sought more space and took advantage of record low interest rates.
“Reflecting the sluggish economic outlook, projections for house prices over the next three years are similarly subdued, although deeper interest rate cuts or tax incentives could quickly change this,” added Rees.
Bank Rate, currently at 5.25%, is expected to drop to 4.50% by the end of this year and 3.50% by the end of 2025, according to a separate Reuters poll, still far from the record low of 0.1% during the pandemic.
In London, a hotspot for foreign investors, prices are expected to rise by 1.8% this year, 3.9% next year, and 4.9% in 2026, an increase from February’s survey.