House prices in the UK peaked about 2 years ago, and after a fall of 6% from that peak, they've been slow to recover. In this video, I'm going to talk about where prices might go next. I'll also show you what's currently driving house

prices and how Labour's budget and policies may negatively influence future growth. So whether you're thinking about buying a first home or selling a house you already own, this video should have useful information for you. Today's video is sponsored by Trading 212, a UK

commission-free investment platform. So let's begin with where we are right now with house prices in the UK. The Nationwide house price index is a good place to start. You can see that house prices have been fairly flat since they peaked around 2022. Recently, there's been a slight

pick up of growth month-on-month, not much of a change, but over the past year, the prices have increased by about 2%. And certainly, if you read the report from Nationwide, they say that house prices have been fairly resilient given the high level of interest rates right

now. They also note that the number of mortgage approvals is kind of getting back to the levels we saw pre-pandemic. Now, they attribute the strength of the market to strong labor market conditions, low unemployment, good wage growth relative to inflation, and they think that's helped underpin a steady rise in

activity and also house prices since the start of 2024. Now, one of the problems with the UK market is that it's priced high relative to UK incomes, and despite the fall that we saw in prices recently, it's done very little to correct that high price to

income ratio and this is just like a price to earnings ratio for stocks it's a good measure of affordability but what Nationwide expects is that if the economy continues to grow pretty well and wage growth continues to grow above the rate of inflation then that should

bring income and prices back into line assuming that prices don't increase much for houses also they think that modestly lower interest rates will help the market because that also increases affordability so we are gradually starting to see a pickup in demand for UK houses after we've had this period of

very high inflation but also very high interest rates relative to recent history now of course that's a positive for house prices that tends to push them up another positive factor that Nationwide mentioned was real earnings growth in the UK that's also starting to moderate now and if that falls too far

such that wage growth doesn't exceed inflation then in real terms people will not be better off and that'll be a drag on the housing market but for now at least that's not the case now a factor which is slightly negative at the moment is that many people expected interest

rates to fall sharply and for mortgage refinancing rates to also fall however that's happened much more slowly than people expected if in fact recently those rates have ticked upwards slightly so later on we'll look at what the Office for Budget Responsibility thinks the impact of the latest budget from

Labour is going to have on those rates and it's not good news but I think the most negative factor for UK house prices is affordability compared to incomes they're just too expensive and we really haven't seen much of a correction at all now whenever I make these videos there

There are two sides to the coin. If you're someone that wants to buy a house, then you're probably hoping that prices will fall and that would be a good thing. And I kind of agree with that. I think for many people in the country, you just can't afford to buy a house on an

average wage. That's true in many regions of the UK, so for those people, falling prices is a good thing. So, throughout the rest of the video, I'll try to be neutral about whether rising prices or falling prices are good or bad. So, now let's turn

to the Autumn budget and see what effects it might have on the housing market. Now, the most obvious change in the budget, which will affect house prices, was to do with stamp duty. So, stamp duty thresholds in the UK had been raised temporarily. We knew that was going to expire in March of 2025, so the

previous thresholds would kick back in from April 2025. Well, now we know that's going to happen. So, that means that the nil rate threshold, which is currently 250k as I make this video, is going to fall to 125k. But the impact will probably be

most keenly felt by first-time buyers. Currently, their nil rate threshold is 425k. That's going to return to 300k. And also, the maximum purchase price for which first-time buyers get any kind of first-time buyer relief, that's going to fall from its current level of

625k down to 500k. So, all that means is that for first-time buyers, a greater proportion of them are going to end up paying stamp duty. Now, that's to make houses less affordable and it'll have a dampening effect on that segment of the

market for first-time buyers So currently 80% of first-time buyers don't pay any stamp duty at all that's going to fall probably to around 60% now of course the effect of that will affect the greatest house prices most so that's mostly in

the southeast of the UK so you can see in this data from Nationwide Homes in the Southeast London the southwest and East Anglia where house prices the highest are most likely to cause a problem for first-time buyers so the height of the bars here shows you the

percentage of transactions which are going to be affected and then the monetary amounts show you the average size of that effect and it varies between about 2k and 3K across the country so immediately a house that was affordable becomes less affordable and

that's going to have a dampening effect on prices certainly for this part of the market Zoopla has a nice set of data where they show the breakdown of sales according to the type of buyer so here if we focus on first-time buyers you can

see that those were starting to pick up at last for a long time they'd really been in the doldrums first-time buyer purchases so what we might expect is that those first-time buyers will bring forward their purchases to avoid this stamp duty increase but after that

flurry of transaction passes I.E from April 2025 onwards what we might expect is a slowdown in activity for this segment now let's turn to the macroeconomic effects of the budget and generally it's expected that the budget will be slightly inflationary why does

that matter, you may wonder. Well, remember, if inflation increases, the Bank of England is more likely to slow down its rate cuts. So that means higher interest rates for longer. Now, the effect on inflation isn't huge according to the Office for Budget Responsibility. They expect it to increase inflation

by around half a percentage point, and that's at the peak effect. So that means inflation will rise to about 2.6% in 2025 and then gradually fall back to the Bank of England's target rate as a consequence of that. They still think the

bank is going to have to cut interest rates as inflation falls. So rates will be higher for longer, and the effect they think on bank rate will be roughly a quarter percentage point increase, and that holds across their entire forecast period, which goes out to 2029. So if

you're wondering about the average interest rate that people pay in the UK on their mortgage, well, it's around 3.7% in 2024. They think it's going to peak at 4.2% in 2027. This is the OBR, and they think it'll remain around that level

until the end of the forecast. So really not much hope in sight for big rate cuts according to the OBR. So what effect does that have on house prices? Well, according to the OBR, they expect 1.7% in 2024, which is very weak growth indeed, and

then they think that'll fall to 1.1% in 2025. So almost no growth at all for the next two years. And of course, the primary reason for that is that the effective mortgage rate is going to continue to rise according to their estimates after

that weak period they think that house price growth will return to around 2 and a half percent growth in 2026 and stay at that weak level of growth to the end of this period 2029 so overall then I think the effect of the budget is going to be one

of chilling house price growth and perhaps causing an outright stall now that's good news if you're someone wanting to buy a house in the first place not so good if you're looking to sell today's video is sponsored by Trading 212 a UK commission-free

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open an account, verify it, fund it, then use my name as the promo code, so that's Roman R A M I N. And you'll find a link to that offer in the description below. And I think it pays to contextualize those rates of growth compared to

history. His now if we just look at the rate of house price growth and don't consider inflation, there's been a fairly good rate of growth of just under 5%. And this is for data going back to 1991. However, if we do incorporate the

effect of inflation, you can see the picture looks completely different. In fact, house prices today based on today's buying power of a pound were matched 20 years ago. Or to put it in another way, there's been no real house price growth over the last two decades. Over the

entire period since 1990, that growth rate has been just over 2%, about 2.3% in real terms. So as an investment, UK houses have not been great. Compare that with equity over the same period, and we're looking at rates of 6, maybe even 7%

depending on where you allocate. So just remember if you look at forecasts of UK house prices, the average, which is what most forecasters go back to, is around 5%, and usually those are expressed in nominal terms, not real terms, because real terms just don't look very good at all.

so we've looked at the effect of the budget in Autumn of 2024 how about Labour's policy of increasing housing supply now Labour's very ambitious target is to build 1 and a half million homes over the next 5 years or 300,000 a year

how far back would we have to look to see that rate of building Well we'd have to go all the way back to the time I was born which is quite a long time ago now it's the late 60s now in the same article this graph is taken from Knight

Frank surveyed house building companies and only one out of 50 of those companies thought that Labour could meet this target so remember it's a house builders themselves who will end up building most of the houses and there's a nice quote which is that builders can

only build if buyers can buy so remember it's not in the interest of the house builders to flood the market with supply because it'll push down house prices at which they can sell their finished properties so there is this conflict of interest here in that the government has

to somehow convince these companies to massively increase supply even though that'll be against their commercial interests and frankly that's unlikely to happen so finally let's look at a forecast of UK house price growth over the next 5 years now this is a forecast

from Savills remember they sell houses it's an estate agent and they're going to talk their own book they want house prices to increase because of course that increases their profit now focusing on the top line here which is for the UK as a whole they think that house prices

will grow by 4% in 2025 and 23.4% over the next 5 years. Now that's pretty close to that long-term average of 5% growth. If we look at the regional breakdown, notice that for London and the southeast, the rates are quite a bit

lower, and that's because of affordability constraints. The UK is still very much two countries when it comes to house prices and affordability. London and the southeast are just vastly more expensive relative to income than the rest of the country, so it's no

surprise then that regions like the West Midlands, the Northeast, Yorkshire, and Humber are forecast to have higher rates of house price growth than, say, London and the southeast. So in summary then, my expectation is that yes, UK house prices will stall over the next couple of years.

This will give first-time buyers a chance perhaps to have their wages increased to the level where they can actually think about buying a house. But I'm kind of disappointed that the government has not come up with a way to really get supply increased and to create more affordable

homes. Perhaps they will at least improve the planning process, which was a bottleneck, should improve things. But if we look at interest rates, remember that if interest rates go up in the US, which many of Trump's policies suggest might actually happen, that'll drag up interest rates in the UK as well, and

that'll also have a chilling effect on UK house prices. But the purpose of these videos is always not for me to tell you what I think. Why don't you tell me what you think in the comments of the video. I'd be really interested to see what you

I think this video is sponsored by Trading 212 and you get a special offer from them where you can claim free fractional shares worth up to £100. To claim those, just open a new Trading 212 account, verify it, fund it with at least a pound and use the promo code which is my name, 

Ramin Romen, or alternatively use a link in the description below. And as always, thank you for listening.

House Prices Set To Fall After Budget Bombshell?

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.

I publish a new video on YouTube every Saturday and you can join me for a live Q&A on the 1st Thursday of every month at 7pm UK time.

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House Prices Set To Fall After Budget Bombshell?

House Prices Set To Fall After Budget Bombshell?

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