Rishi Sunak's electoral prospects could improve as the UK property market slump ends. Photo: LEE SMITH/POOL/AFP via Getty Images
The UK housing market is on the brink of a sea change as prospects improve just in time for the general election.
Rising wages, falling inflation and falling mortgage rates have prompted a wave of analysts to raise their home price forecasts for the coming year as the latest downturn nears an end.
According to Nationwide's seasonally adjusted index, UK house prices have fallen by more than 4% since August 2022.
Although they have some more to fall in the coming months, they should start to recover after the spring, says Deutsche's chief economist Bank in Great Britain Sanjay Raja.
“Expectations of lower rates should encourage buyers to return to the market,” he says. “We expect house prices to rise by 2% from the second quarter to the end of the year.”
Capital Economics now expects prices to rise 3% this year, having previously forecast a fall of 1.5%.
Pantheon Macro Economics also forecasts house prices are expected to rise by 5% between April and December this year.
< p>The faster-than-expected fall in inflation means analysts expect a much earlier interest rate cut from the Bank of England.
That optimism has fueled a mortgage price war as lenders look to the prospect of lower borrowing costs.
It has already seen average mortgage rates fall to a six-month low as Capital Economics expects average two-year fixed rates will hold steady at 4.6% over the next six months before falling to 3.8% by the end of the year.
This in turn will increase affordability as buyers see their savings will increase even more.
In October, the typical two-person household had to devote 28% of its total disposable income to monthly mortgage payments, much higher than the 2010s average of 20%, according to Pantheon.
However, the company said that figure will soon fall to 25% as rates fall, paving the way for more people to move home.
According to the company, consumer demand in the first week of January increased by 10% compared to the same period last year. Zoopla real estate website.
Capital Economics has revised down its forecasts for mortgage approvals this year from 600,000 to 740,000.
Lucian Cook, director of housing research at Savills, says: “It’s increasingly looking like that 2024 will be a very good time to buy, provided you can find a deposit and get competitive mortgage financing.”< /p>
The improved outlook could give Rishi Sunak a boost in his battle against Labour's Sir Keir Starmer.
Rising prices and improving economic activity on the back of lower mortgage rates should be positive for the government, says Andrew Wishart . , who runs housing at Capital Economics.
Time is of the essence in the Prime Minister's plan to hold a general election in the autumn rather than the spring as households are expected to fare better towards the end of the year.
Rising house prices will also boost consumer confidence, says Paul Cheshire, emeritus professor at the London School of Economics: “Rising house prices do seem to have an impact on welfare.”
Growth in The overall economy will also benefit as lower mortgage rates reduce the burden on homeowners completing fixed-rate deals.
Goldman Sachs previously expected mortgage borrowers to pay an extra £30 billion in mortgage interest by the end of the year. late 2025 as homeowners refinanced their projects.
Now lower rates mean this burden will fall by more than a third to £19 billion.
In turn, Goldman argues that the economic slowdown will be smaller. The investment bank revised its expectations for real GDP growth this year to 0.6% from 0.5%, while it now expects growth of 1.3% in 2025, up from previous forecasts of 1%.
< p> fell significantly during the recession, but is also likely to rise if prices and purchasing volumes pick up, adds Andrew Goodwin, chief UK economist at Oxford Economics.
There is a downside to the housing market recovery, however: Cheshire says rising property prices could cause even more discontent among young people.
The wealth effect from a stronger housing market will be limited to homeowners, meaning it will be heavily weighted towards people over 45, he says: “I I see it.” let's go in any direction. Yes, older homeowners will be happy, but younger renters will be more fed up.”
Increased affordability through lower mortgage rates could also be lost if home prices rise quickly.
A former government adviser says: “Some people have a 1990s view that falling house prices are a bad thing, but it's actually much more nuanced now.
“These days, most people, especially if they have a lot of capital and children, don't really care if prices come down a little, and many of them actually welcome it.
“They are so worried about whether their children will be able to afford the family home that a little drop would be welcome.”
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