UK house prices are set to rise this year, according to Knight Frank, following a challenging period in 2023. The property market is being revitalised by a mortgage pricing war and the prospect of another Bank of England interest rate cut in the final quarter of the year. Knight Frank has updated its forecast, predicting a 3% increase in house prices for 2024, a sharp turnaround from an earlier forecast of a 4% decline.
Economic shifts boost market confidence
In the past three months, the UK housing landscape has been significantly influenced by both a general election and a rate cut. Tom Bill, head of UK residential research at Knight Frank, noted, “Our forecasts appear on track, but the first Labour government in 14 years and the first rate cut since March 2020 have clearly changed the mood music.” This shift in sentiment has helped restore confidence in the housing market, with the recent drop in the base rate to 5% playing a particularly crucial role.
Following the interest rate cut, there has been a noticeable impact on the mainstream sales market. Lower-than-expected inflation data led to a decline in SONIA five-year swap rates to around 3.5% in August, with financial markets anticipating further cuts in November. Simon Gammon, head of Knight Frank Finance, said, “This will lead to a meaningful increase in the number of lenders offering sub-4% mortgages this autumn.” As a result, demand and sales volumes are expected to be stronger in the final months of the year compared to 2023.
Regional market performance and outlook
While the overall UK housing market shows signs of improvement, regional markets are experiencing varying degrees of success. The Halifax and Nationwide indices reported a growth of just over 2% in house prices in July, suggesting that Knight Frank’s 3% forecast for the year could be met or even exceeded. Greater London saw a 1.6% increase in prices in the year to June, nearing Knight Frank’s 2% forecast for 2024.
However, the outlook for prime markets, especially in central London, remains uncertain. The upcoming Budget on 30 October is expected to clarify the government’s plans, particularly regarding taxation and its impact on the prime property market. “Any impact would be less marked in prime outer London (POL), where we forecast an increase of 2% this year,” Bill explained, highlighting the resilience of this segment compared to prime central London.
Rental market dynamics and future projections
Knight Frank also notes that the rental market is on track to meet its forecasts, despite the uncertainties surrounding the Renters Reform Bill. In prime central London, rental growth is expected to slow to 2% this year as supply increases. Meanwhile, rental values in prime outer London have risen by 0.7% in the first half of the year, with a full-year forecast of 2.5%.
Looking ahead, Tom Bill commented, “We expect the next three months to provide more clarity about the longer-term future for the UK housing market than the last three.”
