UK House Prices Have Barely Moved in a Year

House prices are back to where they were this time last year.Photographer: Jason Alden/Bloomberg

Gift this article

Have a confidential tip for our reporters? Get in TouchBefore it’s here, it’s on the Bloomberg Terminal LEARN MORE

By John Stepek

January 31, 2024 at 7:27 PM GMT+6

Save

Welcome to Money Distilled. I’m John Stepek. Every week day I look at the biggest stories in markets and economics, and explain what it all means for your money.

UK house prices have stopped falling

As advertised by my colleague Leo in The London Rush this morning, today’s newsletter returns to the hardy perennial topic of UK house prices.

We got the first batch of Nationwide data for the year today. House prices are now virtually flat year-on-year, down just 0.2% on last January, from being down 1.8% in December.

That’s a turn up for the books. As I’ve mentioned many times before, I didn’t expect to get a full-on house price crash, as in one that causes no end of economic damage and sends lots of people into negative equity. But I did expect prices to at least fall a bit, and the 10% being guessed at by many economists this time last year made sense.

So what’s happened? Interest rates have risen sharply since the lows of the post-financial crisis era. That much is unarguable.

The Bank of England released the latest data on mortgage approvals yesterday. The average mortgage rate actually dropped a little, for the first time in over two years. But it still rocked in at 5.28%, compared to a low of 1.51% in November 2021.

So it’s definitely much more expensive to buy a house. And this has been reflected in mortgage approvals. The number of approvals for new house purchases ticked higher to 50,500 in December, from 49,300 in November. But again, that’s still much lower than the pre-pandemic average, as the chart below shows.

So it’s more expensive to borrow to buy a home, and as a result fewer people are taking out mortgages, and those that do, are needing more help from other sources (including the Bank of Mum and Dad). However, because the employment market is strong, there’s no pressure on people to sell their houses particularly, and so prices simply haven’t budged.

Sales Have Been Surprisingly Strong

There’s another interesting quirk here. Yesterday I was talking about how the pandemic and lockdown had disrupted (and are still disrupting) lots of industries. I thought I’d look at what it had done to the housing market.

Every month, HMRC publishes transaction levels for the number of residential properties exchanging hands in deals worth more than £40,000. Unlike some of the house price indices, these figures include cash deals — so it’s not just mortgages.

One interesting feature about the level of annual property sales across the whole of the UK, is that the figure remains remarkably consistent from year to year.

I’m not going to pretend that this is wildly scientific, because the data doesn’t go back that far (it starts in 2005). You also have to remember that we had a property bubble which burst in 2007, and there was then a lengthy period of “convalescence” for the property market.

But if you take calendar year 2014 as the first “normal” year for the housing market post-2008, then the number of transactions per year sticks to a pretty tight range.

The average number of sales per year over the five years from 2014 to 2019 is 1.21 million. The highest number is 1.24 million in 2016 (there was a big stamp duty change which may have pushed a few extra second home sales over the line.) The lowest number was 1.18 million in 2019. So you can see it’s a narrow range.

Then the pandemic breaks out, which of course disrupts the housing market. In 2020, there are just 1.05 million sales. But then there’s a big catch up in 2021, at 1.48 million sales, driven by delayed transactions and also the “race for space.”

In 2022, we get a still-strong 1.26 million (bear in mind that transactions recorded as “done” in 2022 were pretty much all done before the big spike in interest rates). Finally, for 2023 overall, judging by the latest figures (out today), it looks like we’re going to get 1.02 million.

What’s interesting to me is that overall, despite the volatility, the average number of annual sales for the past four years comes in at 1.2 million. In other words, barely different to the pre-pandemic average.

In other words, if interest rates had remained at sub-2% levels, and we’d still had the same outcome, you might have assumed that the real issue in the housing market was not so much that the cost of borrowing had gone up, but simply that a lot of sales had been pulled forward by lockdown (the “race for space”).

You might conclude that the sales decline in 2023 was simply the fallout of returning to “normal.” And that in turn, transaction levels would recover in 2024.

What’s Next for the Housing Market?

However, that’s clearly not the case. Cash sales have made up for some of the collapse in mortgage lending but you wouldn’t think that could continue. So I’d be quite surprised if we get a full recovery of transaction numbers this year.

A lot depends, of course, on what happens to mortgage rates from here. On that front, we’ll get an inkling of what the Bank of England is thinking tomorrow. But you probably don’t need to read governor Andrew Bailey’s mind. He and the rest of the Monetary Policy Committee will likely follow the market’s expectations down just as they followed them higher.

In terms of what happens for the rest of 2024, here are my best guesses for now. This year, the Bank of England rate won’t go above 5.25%, and the next move will be a cut. I also don’t expect it to go below 4%.

Those are the bits I feel pretty confident about (you can never be sure of what the future holds, but I think something major would have to happen for those views to be wrong).

As for what that means for mortgage rates, I suspect that they will probably rattle around current levels, which will be a relief for anyone faced with remortgaging. You can now easily get five-year fixes for below 4%, and two-year fixes below 4.5%.

But all in, when it comes to the housing market, the two big variables this year will be employment and government action. As long as the jobs market remains solid, we won’t get the forced sellers, and so we won’t get big falls in prices.

And if the government decides to chuck caution to the winds and subsidise the housing market in the budget (which in my view would be a huge mistake, but they don’t listen to me), then anyone hoping that prices would fall further is likely to be disappointed.

Send any feedback, opinions or questions to jstepek2@bloomberg.net and I’ll print the best. If you were forwarded this email by a friend or colleague, subscribe here to get your own copy.

What I’ve been reading this morning

  • On this, HMRC self-assessment deadline day, don’t miss Stuart Trow’s piece on how tax complexity is clogging up the machinery of government and leaching productivity from the wider economy.
  • Succession is a serious challenge for any family business, and it’s only getting harder. That’s concerning news for the global economy, warns Adrian Wooldridge.
  • What happens if Donald Trump becomes the next US President? Stephanie Flanders discusses the economic fallout with Fran and Allegra in the latest episode of the In the City podcast.

Mid-day markets

Looking at wider markets — the FTSE 100 is up 0.1% at around 7,670. The FTSE 250 is down 0.2% to 19,315. Gold is up by 0.1% to $2,040 an ounce, and oil (as measured by Brent crude) is down about 1.0% to $82.00 a barrel. The pound is down 0.1% against the US dollar at $1.268, and is flat against the euro at €1.170.

Follow UK Markets Today for up-to-the-minute news and analysis that move markets.

Quote of the day

“So long as you have Congress keep extending the debt limit and doing deals because they’re afraid of the consequences of doing the right thing, that’s the political structure of the political system, eventually you’re going to have a debt spiral. And a debt spiral is like a death spiral.”

Nassim Nicholas Taleb

Writer, risk analyst, and flaneur

The Black Swan author thinks it would take “some kind of miracle” to reduce America’s debt pile before it causes serious problems.

Putting a number on… podcasting power

Before you go…

Like business? Like sport? Then you’ll love the Business of Sports! Bloomberg’s latest weekly newsletter is dedicated to exactly what it says on the tin. Sign up for it here.

The main stories to watch out for on Thursday include:

  • In economic news, we get the latest Bank of England interest rate decision.
  • In corporate news, updates are due from several companies, including telecoms group BT, commodities giant Glencore, and oil major Shell.

If you haven’t yet subscribed to the Merryn Talks Money podcast, I highly recommend you do so. Apple folk can subscribe here; fellow Android users, you could go with Spotify, or just the podcast app of your choice.

And if you want up-to-the-minute news commentary with the odd joke flung in, follow me on X / Twitter.

Leave a Reply

Your email address will not be published. Required fields are marked *