House prices will rise 3 per cent this year, according to a major property firm.
Estate agent Knight Frank had previously predicted a 4 per cent fall by the end of 2024, but has flipped its forecast into positive territory on the back of falling inflation.
That prediction was made only three months ago, in October 2023 – but the agency said a significant drop in mortgage rates since then had changed its outlook.
On the up: Knight Frank says that average UK house prices will increase in 2024 – after previously saying that they would fall
It also cited changing market expectations of what would happen to the Bank of England’s base rate in the coming year.
By 2028, Knight Frank now predicts that house prices will increase by more than a fifth.
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It said: ‘In October, financial markets were pricing in a single interest rate cut of 0.25 per cent by the end of 2024. By the end of last week, they were expecting five.
‘The main reason for this changing outlook is that inflation is falling faster than expected.
‘As a result, mortgage lenders have dropped their rates fairly significantly in recent weeks, partly to win business in a low-volume market.
‘The best five-year fixed-rate mortgage is now under 4 per cent, which was made possible after the five-year swap rate fell a full percentage point over the final quarter of 2023.
‘As a result of this more positive backdrop, we have revised our UK house price forecasts from three months ago.’
Since 1 January, 44 lenders have cut rates on products. The best five-year fixed deal is now at 3.84 per cent and the best two-year fix at 4.24 per cent.
However, deals are being pulled quickly, with some mortgages from the Co-operative Bank only being available for three days.
Knight Frank also pointed to recent house price indexes which have reported more positive numbers than previously forecast.
Fluctuations: This shows how house price indexes have moved compared to the five-year swap rate. Swap rates show what the financial markets think the future holds for interest rates
Halifax reported a 1.7 per cent increase in 2023 while Nationwide posted a fall of 1.8 per cent – more positive than the 5 per cent decline that both had predicted in August.
Knight Frank did say that London, one of its key markets, would see house prices rise less at 2 per cent over the course of this year.
Looking further ahead, it forecast that house prices would rise by another three per cent in 2025, followed by a rise of 4 per cent in 2026, 5 per cent in 2027 and 4 per cent in 2028.
In total, this adds up to an increase of 20.25 per cent in five years’ time.
However, Knight Frank said that those figures could be impacted by the outcome of the next General Election, as well as the ongoing conflict in the Red Sea, which could have an impact on global inflation.
