The Nationwide says 2023 has seen a surprisingly-resilient housing market but there will be no full scale recovery in 2024 – thanks to stubbornly high interest rates.

“Housing market activity was weak throughout 2023. The total number of transactions has been running at about 15 per cent below pre-pandemic levels over the past six months, with those involving a mortgage down even more – around 25 per cent –  reflecting the impact of higher borrowing costs. On the flip side, cash transactions have been running above pre-Covid levels” explains Robert Gardner, Nationwide’s chief economist.

“This subdued picture was also reflected in house prices, which in November were two per cent lower than the same period in 2022, and 4.3 per cent below the all-time high recorded in late summer 2022.

“Even though house prices are modestly lower and incomes have been rising strongly, at least in cash terms, this hasn’t been enough to offset the impact of higher mortgage rates, which are still more than three times the record lows prevailing in 2021 in the wake of the pandemic. As a result, housing affordability is still stretched. 

He says a borrower earning the average UK income and buying a typical first-time buyer property with a 20 per cent deposit would have a monthly mortgage payment equivalent to 38 per cent of take home pay – well above the long run average of 30 per cent.

Looking ahead to next year, Gardener comments: “There have been some encouraging signs for potential buyers recently with mortgage rates edging down. Investors have become more optimistic that the Bank of England has already raised rates far enough to return inflation to target and will reduce rates in the years ahead. This shift in view is important, as it has brought down longer term interest rates which underpin fixed mortgage rate pricing.

“Nevertheless, a rapid rebound in activity or house prices in 2024 appears unlikely. 

“While cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, consumer confidence remains weak, and surveyors continue to report subdued levels of new buyer enquiries. Moreover, while markets are projecting that the next Bank Rate move will be down, there are still upward risks to interest rates. Inflation is declining, but measures of domestic price pressures remain far too high.

“It appears likely that a combination of solid income growth, together with modestly lower house prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim. If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline (low single digits) or remain broadly flat over the course of 2024.”