Forecast for UK House Prices: Mixed Outlook, Modest Growth

UK house prices outlook is mixed, with modest increase forecasted due to factors like mortgage rates, GDP growth, and affordability challenges.

### UK House Price Outlook: Modest Growth Expected Amidst Mixed Forecasts
* 🏠  The UK housing market outlook is influenced by several key factors, including **mortgage rates, GDP growth, and affordability**.
* 📊  Mortgage rates are expected to **decrease**, potentially boosting house prices, while strong GDP growth and low unemployment provide **additional support**.
* 💰  Affordability remains a concern, with **current price-to-income ratios significantly higher than historical averages**.
* 📉  Some forecasts predict a **slight decline in house prices in 2024**, with the Office for Budget Responsibility (OBR) and the Centre for Economics and Business Research (CEBR) offering **more pessimistic outlooks**.
* 📈  Other forecasts, such as Savills and the Pension Craft model, are more optimistic, predicting **modest growth in the coming years**.
* 🌐  Regional variations are expected, with areas like the Northwest and Yorkshire potentially seeing **stronger price growth** compared to London and the Southeast.
* 🏗️  Government policies, such as Labour's plan to **increase housing supply**, and monetary policy changes will play a **significant role** in shaping the housing market's future.
* 🔒  Data privacy concerns are also highlighted, with Incog offering a solution to **protect personal data from being exploited by data brokers**.

in this video, I'll explore the outlook for UK house prices over the next 12 months and beyond. The forecast is mixed, but generally, the outlook points towards a modest increase. Let's dive into the key insights from various forecasts and the factors influencing the market. This video is sponsored by incog, an app that helps you take back control of your data privacy. Let's begin with the drivers of house prices. So, if we take a snapshot of what's driving prices up and down at the moment, I think these are the factors which are most important. Mortgage rates remain high, although many people, including the Bank of England, expect that they will start to fall over the medium term. So, that would be a positive for the housing market because cheaper borrowing generally means higher prices. Now, higher GDP growth is a general positive for the housing market because it usually means higher wages and also greater job security. At the same time, unemployment in the UK is now at about 4.4%. It has ticked up a bit, but it's at historic lows. We'd have to go all the

way back to the 1970s to see unemployment this low. So good job security, combined with very good wage growth at the moment, and also improving GDP growth, all of those paint a fairly positive picture for UK house prices. Looking at surveys which provide a kind of forward-looking measure of house prices, and in particular I'm thinking about the Ricks survey, and that's the Royal Institute of Chartered Surveyors, that generally is getting more positive. So that's also a forward-looking positive for UK house prices. Now let's switch to some of the negatives. There are always some negatives, and the first one I think is affordability. If you look at the price to income ratios in the UK, they're currently very stretched. For example, if you look at data from Nationwide, the median multiple of income which banks lend to borrowers who are buying a house is roughly five times. However, at the moment for the UK as a whole, people are borrowing 6.1 times their income in order to buy a house. And of course, there are regional differences.

in London, it's almost 10 times income, the multiples that we see at the moment, whereas in the north of England and in Scotland, it's only 4.2 times. So, if you're trying to get onto the housing ladder, this is a huge problem, and this is going to always create a softness in the housing market because if new first-time buyers can't afford to get onto the housing ladder, then that affects everyone on the entire ladder. Also, if we look at government policy, they're trying to build many new houses, affordable houses, and of course, if we increase Supply, that should push down prices. So, good news if you're a first-time buyer, not so good if you already own a home and a lot of your wealth is tied up in real estate. Now, people generally in the UK are obsessed with house prices, and the general consensus is that it's a very good investment and it gives you a lot of capital gain. However, if you actually look at prices and adjust for inflation, so with thinking about

2024. In terms of buying power, house prices in the UK on average haven't increased over the last 20 years. Yes, you heard right. In 2004, prices were where they are right now once you inflation-adjust. Now, that's partly because wage growth has been so poor in the UK for some time, about a decade. We haven't seen much wage growth at all in real terms, and house prices are driven by wages. Today's video is sponsored by Incognit, an app that lets you take back control of your personal data. You may not be aware, but there are companies called data brokers who can collect information about you and sell it on to third parties, all completely legally. Where does this data come from? Well, as you live your digital life, you leave breadcrumbs of data all over the place, and these data brokers can collect that, collate it, and then sell it on to a third party. Who can those third parties be? Well, anyone who's willing to buy the data. So, for example, it could be marketing companies. It could be

recruitment companies. It could even be financial companies. And those are the legal users. There are also scammers who can use your personal data. Now what Incognit can do is save you a great deal of time by contacting these data brokers and blocking them from using your data. Here's what the dashboard looks like in Incog. And you can see the requests they've sent out on my behalf. So if we switch to the detail view, you can actually track the progress of all of those data requests. And if we filter by severity score to high, you can see, for example, that they've suppressed Sensia. And furthermore, they keep on sending requests to ensure that they don't add you back onto their lists. So in this case, for example, you can see the associated risks or identity theft, spam mail, and calls, data leaks, and so on. Viewers can get a special discount from Incog with 60% off your annual subscription. Just use our coupon code, which is pension, or alternatively use a link in the description below. And that comes with a 30-day money-back guarantee.

and you can cancel at any time. So, with that in mind, now let's turn to the forecasts for house prices in the UK. So, let's start with the best model of UK house prices, which is ours at Pension Craft. It is a very simple model, but the way it approaches it is to say that house prices are driven by wages long-term. And so, what it tries to do is to forecast UK wage growth. And at the same time, it works out what the price to income ratio will be as well. Now, wage growth steadily increases forever. It's a trending variable. Whereas, if you look at price to income ratios, those are mean-reverting. And currently, they're high. So, at the moment, we've got two conflicting factors. After the inflation surge that we got after the pandemic, wage growth has been very brisk. At the same time, price to income ratios are elevated. And they probably will mean revert. And that's pulling in the opposite direction. That's pulling house prices down. So, what we try to do is to create three forecasts: a central case, an optimistic

case and a pessimistic case. So if we multiply together the price to income and the income, we come up with a house price forecast. Our Central case is that over the next 2 to 3 years, house price growth will be around 2.8%. So certainly not huge, but not a crash either. In the optimistic case, we throw caution to the wind. Price to earnings multiples carry on increasing, and we also get very good wage growth. In that scenario, house prices increase by around 9% per year. The pessimistic case is when we get a very rapid mean reversion of the price to income ratio. Wage growth is very weak, and that gives us a fall in house prices of about 5% per year over the next 2 to 3 years. So I think the central case is the one to pay attention to here, and I think a 2.8% growth over the next couple of years is not unreasonable. And now let's turn to some other forecasts. Let's start off with an optimistic one. It's always

good to start off cheery, and this is from Savills, which of course is an estate agent. So they are very interested in house prices increasing. They forecast 2.5% growth over 2024, and then a gradual increase in the annual house price growth rate to 3.5% in 2025 and 4.5% in 2026. Now why do they think house price growth will accelerate? Primarily, they think it's down to the bank rate, the policy rate from the Bank of England falling. So they think it's going to be 4.5% this year, 3.5% the next year, and 2.5% in 2026. What they also produce is a regional forecast for the UK in the form of a wonderful weather map. I always wanted to be a weather presenter, so here's my chance. Generally, it's looking like a cloudy outlook in 2024, but then things are going to brighten up in the following years. Notice that the sunniest areas where house price growth is greatest are the ones where valuations

aren't too high because of course if there is mean reversion in the price to income ratio, then regions where the price to income ratio is highest are the ones which will suffer the most. So in the Northwest, Yorkshire, and the Humber, Scotland, and so on, house price growth will probably be greatest, whereas in the Southeast where valuations are very high, and London in particular, growth won't be so good. Zupa, which also has a survey which is it does for UK house prices and produces reports and forecasts, expects 1.5% house price growth in 2024. And one of the reasons why it's not too optimistic about house price growth is again this story about valuation being too high. So part of their assumption is that rates stay pretty high, 4.5% is what they're expecting. Now the Office for Budget Responsibility is getting a larger role in UK politics because whenever the government comes up with a new spending plan, the idea is that they'll run it past the OBR to see what the consequences will be. Now one of

the outputs of the OBR's forecast is the housing market. The forecast that they made in March was that house prices would fall by 2% in 2024. That was actually more optimistic than their previous forecast, which they made the previous November, which was that house prices would fall by 5% in 2024. The reason for that was that they expected lower interest rates. They went on to say the average house price in the UK is forecast to fall slightly under 275k in the final quarter of 2024. Looking out a bit further in their forecast, the OBR says that supported by falling new mortgage rates, we then expect house prices to grow around 2% in 2026 and around 32% in 27 and 28. That would see nominal house prices surpass their historical peak in the first quarter of 2027. So this is the most pessimistic forecast of all so far. I mentioned the RICS survey of Chartered Surveyors in the UK because that's a group of people who are very much in tune with

what's going on in the housing market? If you look at the latest Rick survey and look at price expectations over the next 3 months, we're just about getting to the point where more surveyors expect prices to increase than decrease. It is heading upwards, but over the next 12 months, things are looking much more positive. As Rick's say in the survey, it's particularly noteworthy the near-term price expectations stabilized during the latest survey round. Indeed, having been stuck in contractionary territory for the past 2 years, the 3-month ahead price expectation series recorded a net balance of plus 5% in June. This implies that respondents now sense the decline in house prices has largely run its course. Moreover, at the 12-month time horizon, a net balance of plus 41% of contributors expect to see an increase in house prices. So, strictly speaking, this isn't a forecast, but it is forward-looking, and I do trust Rick surveyors to have a good idea of what's going on. The final forecast is from the

center for economics and business research now their forecast, which was made in February of 2024, expects house prices to fall by 1.9%. So that's pretty much in line with what the office for Budget responsibility was saying. They think house prices will bottom out in Q3 of 2024 and then they'll see a gradual recovery. So they expect a peak to trough fall of around 42% between Q4 of 2022 and that bottom point in Q324. However, if you inflation-adjust that fall, it was roughly a 10% peak to trough fall. Looking out a bit further, the CBR gets more positive in its forecast for house prices because they think bank rate is going to end the year 2024 at 3.75%. That's considerably below where it is as I make this video at 5 and a/ qu%. So what should we watch to gauge where prices are heading next? I think the key thing in terms of government policy is house building. Every government tries to build more houses increase supply but

very few governments have succeeded in doing that significantly. Labor's policy in its manifesto is that they're going to increase Supply by 1.5 million houses over their first 5-year term. So that's 300,000 houses per year. To put that in historical context, I've marked as a dash red line that 300,000 number on this graph alongside the actual net supply of houses in the UK going back to 2002. You can see it's going to be a tall order to achieve that huge increase in house building. Unfortunately, the government hasn't got much money to work with given their self-imposed fiscal constraints. But primarily it's about planning and what they describe as a blitz of planning reform. They also plan to have a whole new generation of New Towns, and they're going to devolve power to local Mayors and give them control over new Housing Development. There will be a planning passport to FasTrack Planning Development for Brownfield sites, and The Perennial first-time buyer helped to buy.

scheme. So, instead of making house prices more affordable, they'll artificially inflate the amount that first-time buyers can borrow. Now, if that policy succeeds, then increased supply at the low end of the market should push down prices. The other thing, which is incredibly important, is monetary policy. Based on the May monetary policy report from the Bank of England, the Bank of England expects rates to gradually fall. So, they think bank rate will remain at 5.2% until the middle of 2024, then 4.54%, 3.7% in the following 3 years. So, nothing like the incredibly low rates which we've seen for a decade. And so, it's not the case that money will become incredibly cheap again. Also, the Bank of England expects that reduction in rates to be very gradual. So, you can see there's a pretty wide dispersion in the forecast over the next 12 months and beyond. Our forecast is probably the most optimistic at 2.8%, but it really depends on what happens to interest rates.

course whether the new supply policy from labor actually bears fruit. Now don't forget our offer from incog. If you want to take back control of your personal data, then you can use our promo code, which is pension. You can also use the link in the description below to get a 60% discount of your annual subscription. And as always, thank you for listening.

The Future of UK House Prices

My name is Ramin Nakisa and I started PensionCraft in 2016 as I felt strongly that I wanted to teach people how to invest well for themselves so they could stop making costly mistakes and losing their money through having to pay unnecessarily high fees.

Before starting PensionCraft, I worked in investment banking as a strategist and I was a frequent contributor on CNBC and Bloomberg TV. I have written two books about finance and investment: one for professional investors and one that explains how to buy and sell volatility using exchange-traded products.

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PensionCraft

Various factors are influencing the mixed forecast for UK house prices, including high mortgage rates and affordability challenges.

Positive indicators such as higher GDP growth and job security are contributing to a modest expected increase.

However, the stretched price to income ratios and government efforts to increase housing supply are creating negative pressure on the market.

The overall obsession with house prices as a good investment is also influencing the outlook.

The Stagnation of UK House Prices and the Threat of Data Brokers

House prices in the UK have not increased in the last 20 years when adjusted for inflation, partly due to poor wage growth.

The forecast for UK house prices suggests a conflict between brisk wage growth and high price to income ratios, potentially leading to a stagnation or decrease in house prices.

Incognit, a data privacy app, offers a solution to the threat of data brokers collecting and selling personal information to third parties, providing a dashboard to track and block data requests, with a special discount available for users.

House price growth is projected to be around 2.

8% in the central case scenario over the next 2 to 3 years, with an optimistic forecast of 9% growth per year and a pessimistic forecast of a 5% fall in house prices annually.

5% in 2026, attributing the acceleration to a falling bank rate.

Zupa, another housing surveyor, expects 1.

5% house price growth in 2024, citing high valuations and an expected high interest rate.

The OBR forecasted a 2% fall in house prices for 2024, an improvement from their previous 5% forecast, attributing it to expected lower interest rates.

They also predict a 2% growth in 2026 and a significant 32% increase in 2027-28, leading to prices surpassing their historical peak.

The RICS survey of Chartered Surveyors shows an upcoming increase in house prices, with a net balance of plus 5% in the next 3 months and plus 41% over the next 12 months.

Forecast for UK House Prices and Factors Affecting Them

The Center for Economics and Business Research expects a 1.

9% fall in house prices by Q3 of 2024, with a projected gradual recovery.

They also anticipate a peak to trough fall of around 42% by Q3 2024, but when inflation-adjusted, the fall is roughly 10%.

The key factors to watch for the future of house prices include the bank rate, government policies on house building, and the implementation of planning reforms and initiatives to increase housing supply.

The Impact of Housing Policies and Monetary Trends

Housing policies may artificially inflate first-time buyers' borrowing capacity, potentially increasing the supply at the lower end of the market.

The Bank of England anticipates a gradual decrease in interest rates, with a wide dispersion in forecasts for the next 12 months and beyond.

This suggests that housing affordability and market trends will be heavily influenced by both government policies and monetary decisions in the coming years.