"We often hear about property market cycles - recovery, boom, and crash - but right now, there’s little to suggest any major downturn, not even a minor one is on the way. "
In a surprising turn of events, inflation dropped to 1.7% in September, dipping below the Bank of England’s (BoE) 2% target for the first time since April 2021.
This larger than expected drop makes it increasingly likely that we’ll see at least one base rate cut from the BoE before Christmas - if not two, which should pave the way for a busier than usual lead up to Christmas.
Of course, a few factors could still disrupt the market. Everyone will be keeping a close eye on events in the Middle East, which could lead to higher oil prices and increased inflation. We also can’t rule out a few surprises in the upcoming Budget.
But overall, the outlook for the next few quarters is promising. As affordability improves, house prices are likely to continue climbing, and we might even see them reach another record high in 2025.
House prices defy expectations
Predictions of a modest drop in house prices of 2-3% during 2024 haven’t materialised and nor are they likely to before the end of the year.
The market is currently holding steady, with slight fluctuations up or down, which is always welcomed by surveyors. Double-digit house price increases like those we saw in 2022 can be much harder for surveyors to track - steady rises and falls are much easier to manage.
The latest Halifax House Price Index shows a 0.3% increase in September’s house prices, matching August’s rise. Year-on-year, prices are up 4.7%, marking the strongest annual growth since November 2022. The average property price now stands at £293,399, just shy of the £293,507 record set in June 2022.
We often hear about property market cycles - recovery, boom, and crash - but right now, there’s little to suggest any major downturn, not even a minor one is on the way.
If we look back at the house price declines of the late 80s, early 90s, and 2007, the first crash was driven by a flood of repossessed properties after interest rates hit 15%. While during the 2007 financial crisis, banks effectively ran out of money, so prices had to adjust to match the funding available.
Since then, legislation around capital adequacy requirements for lenders has strengthened, and we’ve seen how resilient both the market and banks are - especially post-Covid, even amid rising inflation. While borrowing became more expensive, the ability to borrow never dried up.
Now, with inflation easing and interest rates falling, affordability is improving once more. And while housing transactions might not have increased compared to last year, house prices are still rising because there’s still competition for properties.
Limited supply keeping prices high
Rightmove recently reported that estate agency stock had hit a decade high - but there still aren’t enough of the right types of properties that people want to buy to meet demand.
The only real way house prices would drop significantly is if sellers started offering properties significantly below market value - which isn’t going to happen anytime soon.
So, what could cause house prices to fall dramatically? Honestly, not much. Even if the government reaches its ambitious goal of building 1.5 million homes over the next five years, including affordable homes, it’s unlikely to pull prices down across the board. Instead, it will give more renters the chance to step onto the housing ladder, which will ease some pressure on the rental market.
If the government’s housing plans succeed, we might see a more natural flow in the market, with first-time buyers buying up smaller homes and trading up over time, rather than jumping straight into larger, expensive properties.
Looking ahead, there’s little reason to expect a major drop in house prices. With the population and the number of households growing, we’re still struggling to meet demand. As we approach the new year, 2025 is shaping up to be strong for both house price growth and mortgage activity.
