Our housing expert Andrew Asaam explores what homeowners and renters might see in the market this year.

Andrew Asaam
Homes Director, Lloyds Banking Group
01 February 2024
4 min read

2023 was a financially difficult year for many. Economic turbulence and the rising cost of living put severe pressure on many household’s finances. Despite this we’ve seen that, on the whole, homeowners were more resilient in 2023 than was probably expected, and have been able to absorb increased mortgage payments as interest rates increased. 

However as we begin 2024, consumers are feeling uncertain. Inflation, war, and geopolitical uncertainty dominate the narrative, while interest rates remain high and real incomes remain low. 

How might all this impact the property market this year; we look at the forecast for 2024 as well as how different parts of the market, such as first-time buyers, renters and housebuilders might be affected. 

 

Short term impacts to the housing market

1. Inflationary pressure impacting purchasing power

Despite the recent highs in inflation that are now subsiding, inflation remains above the Bank of England's target of 2% and in the near term will continue to impact the amount of money consumers have to spend. As a result of this, it’s unlikely the housing market will be returning to the unprecedented levels of activity that we saw in 2021 and 2022, categorised by the race for space that came from COVID-19, and by the stamp duty cuts which helped boost the housing market in those years.

The squeeze on available cash and uncertainty that consumers are facing will both likely moderate the price potential homebuyers are willing to pay for a property at the moment. This will result in a smaller housing market in 2024, and we expect house prices to fall between 2% and 4% this year.

2. Mortgage rates

Despite indications that mortgage rates are past their peak and that rates are reducing, they're still up from the low levels that people had become used to. Two years ago, we saw rates sit around 2-3%, with some even dipping under 1%, but for those remortgaging in the coming year, that will more likely be around 4% and 4.5%. As a result of this, we can expect to see people trying to manage their repayments through longer term mortgages, so we assume we’ll see that trend continuing through 2024.  

We still offer the Mortgage Charter to help support customers facing financial difficulty with a range of payment options. These include extending the mortgage term or making interest only payments for six months, as well as switching to a new mortgage deal six months in advance. 

“We expect house prices to fall between 2% and 4% this year.”

What can we expect to see in the rental market in 2024? 

Higher mortgage payments mean that more people are staying in rental accommodation for longer. However, there’s becoming a reduced supply of rental homes, with landlords contemplating whether to stay in the market due to tax and regulation challenges. 

Increasing rents are likely to restrict renters' ability to save and get onto the housing ladder. That, combined with falling house prices and reducing mortgage rates, will improve buy-to-let yields. This should see landlords start to return to the market, improving availability of rental homes and in turn could eventually bring rents down, but it will likely be a slow process.

This private rental market is a critical area due to the lack of available social housing. We need to make sure it’s vibrant and effective, while at the same time improving rental standards. This is the focus of the rental reform bill that’s going through Parliament this year.

 

What will 2024 look like for house builders? 

Due to tightening customer demand towards the end of 2023, building forecasts had not been due to rise this year, with JLL forecasting 150,000 construction starts in 2024 – the same number of starts that there were in 2023. At the end of last year, JLL also predicted that the rate of housing undersupply will get steadily larger, with a cumulative shortfall of 720,000 homes between 2023 and 2028.1

However, there is now growing optimism that reduced mortgage rates are leading to increased affordability, and that stable new house prices might stimulate an uptick in 2024 construction figures. It will be a slow transition, but confidence appears to be returning to the market.

Many housebuilders will also be conscious that, from next year, it is expected that all new homes in England will need to be built to the Future Homes Standard. This means ensuring that homes built from 2025 onwards have the equivalent of 75-80% less carbon emissions than homes built to 2013 standards. 

Some of the measures that new homes will be equipped with to meet the Future Homes Standard include improved insulation, air source or ground source heat pumps, and triple glazing in windows. The cost of these additions range between an additional £5,000 – £10,000 per home, so housebuilders will need to absorb these costs somewhere. This could mean more pressure on their margins, or impact the price they pay for land.2 2024 may be a year of continued preparation for housebuilders before the new standard kicks in. 

 

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4 July 2023 | Pete Glancy

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What does 2024 look like for first time buyers? 

Many prospective first time buyers are now moderating their expectations, with 61% now prepared to move to a different part of the country in order to purchase their first home, while 46% are now willing to consider homes up to a quarter smaller than their ideal size. 

If house prices fall and wages outpace inflation then affordability will improve for first time buyers. Our data indicates that we’re unlikely to see first time buyer numbers decline in 2024 compared to 2023.

The election in 2024 will also have an impact with both Government and opposition parties demonstrating a commitment to increase access to home ownership. Housing is going to be a key battleground, so this may cause some uncertainty in the market in the run up to the election.

We also expect to see an increase in demand of shared ownership properties in 2024 as first-time buyer affordability remains challenged and people who want to own a home exploring alternative means to get onto the property ladder. However, we need to be mindful that an increase in demand for shared ownership homes doesn't necessarily equate to an increased supply. 

 

Is buying a house still worth it? 

There are still many advantages to owning a home, and it remains many people's aspiration. Home ownership can offer long term financial and living stability, however, different home setups will work for different people and different life circumstances. The most important thing to do is meet housing needs and to create a secure home environment.

For that reason, we’re committed to contributing to a UK in which all households have access to affordable, safe and sustainable homes in places they want to live. Given the uncertainty that we’ve experienced over the last few years, one thing’s for sure - 2024 is unlikely to turn out as expected. 

Andrew Asaam
About the author Andrew Asaam

Homes Director, Lloyds Banking Group

Andrew Asaam is a banking professional with over 25 years' experience working in financial services.

During this time he has covered a number of areas including M&A, multi-year change, credit risk and P&L ownership. Andrew is currently the Mortgages Director for Loyds Banking Group covering all brands and channels.

During his career he has held various leadership roles including Director of Mortgage and General Insurance at Virgin Money and as Credit Risk Director at TSB looking after all retail and business banking products.

Follow Andrew on LinkedIn.

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