Tepid housing activity this year will stumble into a “subdued market” in 2024, despite signs that cost-of-living pressures are easing, says Nationwide.  

“Housing market activity was weak throughout 2023,” says Nationwide chief economist Robert Gardner.  

He adds: “The total number of transactions has been running at around 15% below pre-pandemic levels over the past six months, with those involving a mortgage down even more [at around 25%], reflecting the impact of higher borrowing costs.”  

The mutual lender says this downbeat picture was reflected in house prices, which in November were 2% lower than a year ago — and 4.3% below the all-time high posted in late summer 2022.  

The lender’s forecast follows the Bank of England’s Monetary Policy Committee holding the base rate at 5.25% yesterday – but this comes after rates rose 14 times in a row from a historic low of 0.1% in December 2021.    

The central bank is battling to bring down inflation, currently at 4.6%, to its 2% target.  

The move by the central bank has hiked mortgage rates, with around 1.6 million deals due to end in 2024, according to UK Finance, many of whom will roll off sub-2% home loan rates onto monthly payments that are hundreds of pounds higher.    

Nationwide’s Gardner says: “Even though house prices are modestly lower and incomes have been rising strongly, at least in cash terms, this hasn’t been enough to offset the impact of higher mortgage rates, which are still more than three times the record lows prevailing in 2021 in the wake of the pandemic.  

“As a result, housing affordability is still stretched. A borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 38% of take-home pay – well above the long-run average of 30%.”  

The lender says there have been “encouraging signs” for potential buyers as mortgage rates edging down.   

It points out that investors have become “more optimistic” that the Bank of England has already raised rates far enough to return inflation to target and will reduce interest rates in the years ahead, which underpins fixed-rate mortgage rate pricing.  

But Gardner says: “A rapid rebound in activity or house prices in 2024 appears unlikely. While cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, consumer confidence remains weak, and surveyors continue to report subdued levels of new buyer enquiries.  

“Moreover, while markets are projecting that the next Bank rate move will be down, there are still upward risks to interest rates. Inflation is declining, but measures of domestic price pressures remain far too high.  

He points out: “It appears likely that a combination of solid income growth, together with modestly lower house prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim.  

“If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline [low single digits] or remain broadly flat over the course of 2024.”    

Propertymark chief executive Nathan Emerson says: “With interest rate rises and an inflation increase looking unlikely in the new year, we can start 2024 with a sense of cautious optimism.   

“Though the Nationwide report points to a drop in house prices in the new year, Propertymark hopes that this will help maintain sales volumes and support market confidence whilst we navigate the impact of current interest rates and the rate of inflation.   

“2024 presents an opportunity for governments across all nations to focus on incentive and support schemes to get more first-time buyers onto the housing ladder.”