UK house prices are set to edge higher this year, driven by a competitive mortgage market and the expectation of another Bank of England interest rate cut in the final quarter of the year, according to Knight Frank. This positive shift comes after a year of price declines in 2023, with the estate agency revising its forecast from a 4% drop to a 3% rise in house prices for 2024.
The backdrop of falling inflation and anticipated interest rate reductions is creating renewed confidence in the property market. In the past three months, both a general election and a rate cut have further supported market stability. Tom Bill, Head of UK Residential Research at Knight Frank, notes, "Our forecasts appear on track, but the first Labour government in 14 years and the first rate cut since March 2020 have changed the mood music."
Knight Frank highlights that the recent interest rate cut has had a more significant impact on the housing market than the change in government. The reduction in the Bank of England’s base rate from 5.25% to 5% and lower-than-expected inflation data have led to a drop in SONIA five-year swap rates, which fell towards 3.5% in August. Financial markets are already pricing in another rate cut in November, which is expected to result in a "meaningful increase" in lenders offering sub-4% mortgages this autumn.
This improved mortgage landscape is set to boost demand and sales volumes in the final months of the year, compared to 2023, when transactions were 19% below the five-year average due to high inflation and rising borrowing costs.
In terms of property prices, the Halifax and Nationwide indices recorded growth of just over 2% in July, supporting Knight Frank’s forecast of a 3% rise in UK house prices for 2024. In Greater London, prices grew by 1.6% in the year to June, approaching Knight Frank’s 2% forecast for 2024.
While the outlook for prime markets is less clear, especially with the upcoming Budget on 30 October, Knight Frank remains cautiously optimistic. In prime central London (PCL), prices are expected to narrow their annual decline from -2.4% to -1% by December. In prime outer London (POL), a 2% increase in prices is forecast, with average prices rising 0.6% in the six months to July, putting them on track for a low single-digit increase in 2024.
Knight Frank’s forecasts for the rental market in 2024 also remain steady. In prime central London, rental growth is expected to slow to 2% as supply increases. Meanwhile, rental values in prime outer London rose 0.7% in the first half of the year, with a full-year forecast of 2.5%. Across the wider UK market, annual rental growth stood at 8.6% in July but is expected to cool to around 6% by year-end.
For investors, the current environment presents an opportunity to lock in favourable mortgage rates as interest rates are expected to fall further. With house prices poised to rise and rental demand remaining strong, the potential for capital growth and steady rental income makes the UK property market an attractive proposition in 2024.
As the year progresses, Knight Frank will reassess its forecasts after the October Budget, particularly in light of potential changes to tax policies and regulations affecting landlords. However, the overall outlook for the UK property market is one of cautious optimism, with opportunities for both capital appreciation and rental yield growth.
At Magnate Assets, we believe this positive momentum creates a compelling case for property investment in the UK. Whether you’re considering residential buy-to-let or exploring prime central London opportunities, our team is here to help you navigate the market and make informed investment decisions.