The Hamptons housing market forecasts report said property transactions had been worst hit by the market slowdown than house prices, with HMRC figures showing there were 555,780 sales in the first seven months of 2023. This was 19 per cent down on 2022 and 12 per cent fewer than the pre-pandemic 2019 period.
Hamptons said there was unlikely to be a notable rise in transactions in the second half of the year and predicted that completions would fall to the lowest number since 2012.
The firm added: “But more significantly, it will also be just below the total of 2020 when there were 1.02 million, despite multiple lockdowns.”
As for house prices, Hamptons said there would not be a crash and predicted a 7.4 per cent decline for the year. It said if mortgage rates continued to fall, it did not expect another decrease in house prices in cash terms in 2024.
The firm noted the regions where affordability is most stretched, such as the South West and South East would see the biggest drop in values. Hamptons also predicted that average house prices in Wales would fall by four per cent, noting that the region had seen the strongest price growth of 56 per cent between 2015 and 2022.
Hamptons said price falls in London would be limited with a 2.5 per cent decline as growth in the capital had been lower in the last five years.
Aneisha Beveridge (pictured), head of research at Hamptons said despite rising rates and the cost of living pressures, it was becoming “increasingly clear” that the forecast house price crash had not materialised.
She added: “Rather, we expect a minor price fall in 2023 followed by a slower recovery over subsequent years as households adjust to an era of higher rates. This will be more akin to the U-shaped downturn of the early 1990s than the V-shaped crash and subsequent speedy recovery in 2008.
“On paper, the house price falls we forecast are minor in nominal terms. But high inflation for other goods and services means that in real terms, the average price of a home will have fallen around 11 per cent between 2022 and 2024. This essentially reflects ‘the correction’ caused by higher rates. It’s also why we expect prices to rise again in both real and nominal terms from 2025 as rates fall to their new normal and a new housing cycle begins.”
Rental growth to surpass house price rises
Hamptons said the shortage of rental homes coupled with rising landlord costs would continue to “put pressure on rents”.
The average rent on a newly-rent property in Great Britain increased by 9.9 per cent in July, which was the 27th consecutive month where rental growth was more than five per cent. There were also 43 per cent fewer homes available to rent than the same month in 2019.
Hamptons said average rents would rise by 25 per cent between 2023 and 2026 and the biggest increases would be seen during 2023 and 2024 as landlord mortgages expire and they face higher payments.
It said the average rent would reach £1,550 per month which would be £333 more each month than December 2022.
Despite this growth, Hamptons said landlords would remain materially worse off than two years ago.
Beveridge said: “There’s a strong argument that the Bank of England’s quest to quell inflation has hit the rental sector harder than any other part of the housing market. A build-up of long-term supply issues combined with soaring landlord costs is putting upward pressure on rents.
“And it’s hard to see any of these pressures receding any time soon, which is why we expect rents to continue rising over the next few years.”
Market to recover in 2025
Hamptons said affordability would be the main driver of house price growth next year. It predicted that falling mortgage rates alongside rising real incomes would see house price declines stabilise and result in zero per cent annual growth by the end of 2024.
In real terms, this would represent a 9.9 per cent decline compared to 2023.
Hamptons said if interest rates stayed above five per cent, this would be “painful” for many households.
It said if the financial markets were correct about the base rate sitting at 5.3 per cent by the end of 2024, the average two-year fixed mortgage rate would be 5.3 per cent and five-year fixes “will likely be lower”.
The estate agency predicted a total of 1.1 million housing transactions for 2024 as it said a fall in mortgage rates and improved affordability would result in more moves.
It said the possibility of a significant rebound would be limited by higher rates and potential political uncertainty.
Further, higher build costs will impact the delivery of new homes.
Hamptons said transactions would recover to the pre-Covid norm by 2025 and there would be 1.2 million completions due to pent-up demand and lower interest rates.
It said rates would stabilise to a new norm by 2026 which would ease affordability and push completion numbers up to 1.3 million.
Hamptons said most of this recovery would be led by upsizers and first-time buyers.
House prices would start to rise again by 2025 across all regions and Hamptons forecast a three per cent increase putting values near to the 2022 peak.
It said interest rate cuts would stimulate the market and by the end of 2025, the base rate would fall to 4.6 per cent. This would cause the average two-year fixed rate to fall to below five per cent.
It noted that recovery could be stronger if the Bank of England makes larger base rate cuts to avoid deflation.
Average fixed-rate to fall to 4.75 per cent in 2026
In 2026, the average two-year fixed rate will fall to 4.75 per cent if financial markets predictions on the base rate are correct. Hamptons said this would be the new normal and lead to a five per cent house price growth with London performing the strongest and reporting a 7.5 per cent increase in prices.
Hamptons said households with a mortgage would be feeling the impact of higher rates in 2026 except for people who took a five-year fix in 2022.
It said borrowers refinancing a two-year fixed rate deal in 2026 would be able to remortgage at a lower rate.
