How Inflation and Interest Rates are Affecting Property Prices in 2024

Inflation and interest rates heavily guide the property market, making these metrics incredibly useful for buyers and real estate investors. Inflation and interest rates significantly shape property valuation across the UK, influencing everything from buyer sentiment to lending conditions. By understanding how these concepts interact, you can make a more informed decision about property investment.

In this article, we’ll look at how inflation and interest rates affect property prices in 2024, offering insights into potential future trends and strategies for those looking to successfully invest in real estate.

The Impact of Inflation and Interest Rates on Property Prices

Many variables could impact property prices over time, but few are as powerful as inflation and interest rates. By understanding the current inflation and interest rates, you will know the best time to purchase property and when it might be better to wait until things settle down.

Understanding Inflation

Inflation represents the rate at which the general level of prices for goods and services is rising, thereby eroding purchasing power. The UK measures inflation primarily through the Consumer Price Index (CPI), which tracks changes in the price of a basket of consumer goods and services over time.

Historically, inflation has fluctuated due to factors including economic policies, supply chain disruptions, and changes in demand. Looking into 2024, inflation trends are being closely watched as they slowly descend from the peaks of 2022. Although inflation is currently dropping to around 2.3 %, this only means that prices are rising less quickly.

Understanding Interest Rates

Interest rates, set by the Bank of England, are a tool used to control monetary policy, influence inflation, and stabilise the currency. These rates directly affect the cost of borrowing money, including mortgages, which are critical for purchasing property.

The UK has previously seen a range of interest rate adjustments to manage economic stability. In 2024, with inflation on the rise, interest rates have stayed at 5.25 % to temper spending and borrowing, making mortgages more expensive and potentially slowing down the real estate market.

How Interest Rates Influence Property Values

Interest rates can influence property values directly and indirectly. Higher interest rates generally lead to higher mortgage interest rates, which can decrease the affordability of homes for many buyers. This reduces demand and potentially lowers property prices.

Conversely, the expectation of increasing rates can spur a short-term boost in demand as buyers rush to lock in lower rates, temporarily driving up prices. The UK is experiencing these dynamics, as rising rates have cooled some overheated market segments while prompting increased activity in others ahead of anticipated further increases.

Market Segmentation and Combined Effects

The real estate market in the UK is segmented into several different areas, from urban residential properties to buy-to-let holiday homes. From an investment standpoint, knowing which segments are thriving - and which are suffering - in the current climate can help to guide your decisions.

Combined Effects of Inflation and Interest Rates

Inflation and interest rates typically interact in complex ways in the real estate market, which causes differences in different segments. High inflation can erode the value of borrowed money, which can benefit existing mortgage holders but be detrimental to savers and new borrowers. This was the case in 2023 when sticking to a fixed-term mortgage deal worked out better than a variable-rate mortgage due to expected interest rate increases.

This interaction is particularly poignant in 2024, as rising prices and higher interest rates squeeze buyers' budgets but simultaneously benefit those who secured fixed-rate mortgages when rates were low.

Market Segmentation Analysis

The impact on property prices varies significantly across the different market segments. Residential properties in urban areas, particularly in London and the Southeast, are witnessing different trends compared to rural and northern regions. The increased cost of borrowing and higher living costs affect demand differently across these regions, with some areas seeing price stabilisation or minor declines. In contrast, others continue to experience growth due to sustained demand.

One aspect of this has been the rise of remote working, which has given people who had to live near big cities like London more freedom to live in and around less densely populated parts of the UK.

Strategies and Expert Predictions

By understanding what lies ahead for the housing market 2024, you will find yourself in a much better position to find the best investments. So, let’s take a look at what the experts are saying about the state of the market this year:

Investment Strategies in 2024

When it comes to finding success in the UK property market, the right strategy can make all of the difference.

The property market landscape in 2024 requires a keen understanding of both macroeconomic trends and local market conditions. Investors are advised to focus on long-term growth areas, consider the benefits of rental income in high-inflation scenarios, and be cautious of areas with overheated markets vulnerable to corrections. Diversification and understanding interest rate trends can also help mitigate risks associated with volatile economic conditions.

Expert Opinions and Predictions

Experts predict that the remainder of 2024 could see continued drops in property prices, influenced by both domestic factors and global economic conditions.

Insights from real estate analysts such as the Centre for Economics and Business Research (CERB) suggest that areas with strong employment growth, infrastructure development, and housing shortages may offer resilient investment opportunities despite the broader economic uncertainty.

Conclusion

2024 is a complex landscape for the UK property market, influenced heavily by the dual forces of inflation and interest rates. Understanding these dynamics is key for anyone looking to buy or invest in real estate. By keeping informed of economic trends and adapting strategies accordingly, stakeholders can navigate the uncertainties of the property market with greater confidence and success.

If you’re looking to glean the most powerful insights for property investment in the UK, it helps to have the latest and most excellent tools in your arsenal. PropertyData is a leading analytics tool for investors and developers in the UK real estate market, offering innovative insights that help guide your decisions. Get started today or get in touch if you have any questions about PropertyData.

Sign up to PropertyData for free

How PropertyData can help you

PropertyData investor illustration

Be a smarter property investor using data

Some of the ways property investors use PropertyData to boost their returns

I'm an investor
PropertyData data illustration

Make data-driven development decisions

How property developers can use market research in decision-making

I'm a developer
PropertyData clients illustration

Save time and impress your clients with data

How agents can use PropertyData to gain an edge on the competition

I'm an agent

Limit reached

Sorry, you've reached your monthly search limit.

Upgrade your account or purchase additional credits for more searches.

Upgrade Purchase credits

Upgrade to download PDFs

There are many places in PropertyData to export data as well-formatted PDF files, including Local Data, Plot Map, Valuations, property reports and more.

  Download PDFs Branded PDFs
Basic
Standard
Pro
Unlimited
Start your free trial now

Transparent data promise

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How often is the data updated?

The data is updated in near real-time.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from the portal, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

What are the statistics used?

Averages shown are the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How do you know the square footage of properties?

We use proprietary technology to read the square footage of properties from agent floorplans. Although we cannot determine the square footage for all properties, we can usually get sufficient coverage. Agents are sometimes known to inflate square footage, and this should be borne in mind as a weakness of this data.

How often is the data updated?

The data is updated in near real-time.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from the portal, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property "price paid" data provided by the Land Registry.

How often is the data updated?

Once per month when released by the Land Registry, typically towards the end of each calendar month covering up to the end of the previous calendar month.

What time period does the data cover?

You can customise the time period using the filter at the top of the view. The default time period is up to 9 months back from today's date. The latest data covers the period up to 2024-05-31, although some sales that took place before this date may still be added in the coming months.

How is the raw data processed?

No additional processes are applied to this data.

What are the statistics used?

Averages shown are the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property "price paid" data provided by the Land Registry, and Energy Performance Certificate (EPC) data provided by Department for Levelling Up, Housing & Communities.

How do you know the square footage of properties?

We match the Land Registry data to EPC data provided by the Department for Levelling Up, Housing & Communities. Due to the fact that not all properties sold have had an EPC and vagaries of addressing in the UK, we are not able to determine the square footage of all properties, but we can usually get sufficient coverage.

How often is the data updated?

The private paid data is updated once per month when released by the Land Registry, typically towards the end of each calendar month covering up to the end of the previous calendar month. The energy performance certificate database is updated monthly.

What time period does the data cover?

You can customise the time period using the filter at the top of the view. The default time period is up to 9 months back from today's date. The latest data covers the period up to 2024-05-31, although some sales that took place before this date may still be added in the coming months.

How is the raw data processed?

No additional processes are applied to this data.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How often is the data updated?

The data is updated in near real-time.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from the portal, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Room let listings on SpareRoom, the UK's biggest room letting website.

How often is the data updated?

The data is updated in near real-time.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from SpareRoom, they are soon removed from this tab.

How is the raw data processed?

Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How often is the data updated?

The data is updated in near real-time.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from the portal, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded. Yields are calculated by comparing only properties with the same number of bedrooms, e.g. 3-bedroom properties for rent with 3-bedroom properties for sale.

What is the yield calculation used?

The calculation used is (average_weekly_asking_rent * 52 / average_asking_price), expressed as a percentage. It is a top-line gross yield, meaning no expenses are considered.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How often is the data updated?

The data is updated in near real-time.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from Zoopla, Rightmove or Spareroom, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Yields are calculated by comparing only properties with the same number of bedrooms, e.g. 3-bedroom properties for rent with 3-bedroom properties for sale. For the SpareRoom data, hypothetical properties consisting of two to six average double rooms with shared bathrooms are used to derived average rent. For all sources, listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

What is the yield calculation used?

The calculation used is (average_weekly_asking_rent * 52 / average_asking_price), expressed as a percentage. It is a top-line gross yield, meaning no expenses are considered.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property "price paid" data provided by the Land Registry.

How often is the data updated?

Once per month when released by the Land Registry, typically towards the end of each calendar month covering up to the end of the previous calendar month.

Zoopla Zed-index

What time period does the data cover?

The data covers transactions in the last six years

How is the raw data processed?

No additional processes are applied to this data.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How often is the data updated?

The listings data is updated in near real-time. The Land Registry data is updated once per month when released, typically towards the end of each calendar month covering up to the end of the previous calendar month.

What time period does the data cover?

The price paid data shown goes back to January 2015. The listings data is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from the portal, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

What are the calculations used?

Average sales per month are for the last 3 finalised months. Turnover is average sales per month divided by total for sale. Inventory is 100 divided by turnover.

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How often is the data updated?

The listings data is updated in near real-time. The Land Registry data is updated once per month when released, typically towards the end of each calendar month covering up to the end of the previous calendar month.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from the portal, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

Where does the raw data come from?

We receive data on the extent and corporate ownership of all land titles in England & Wales from the Land Registry.

How often is the data updated?

The data is updated once per month when released, typically in the first few days of each calendar month.

What time period does the data cover?

This is an ownership snapshot - the data represents ownership as recorded by the Land Registry at the last monthly export.

How is the raw data processed?

No additional processes are applied to this data.

Where does the raw data come from?

We source different expert forecasts Savills, Knight Frank, OBR

How often is the data updated?

The data is updated annually when new forecasts are released, typically towards the beginning of the year.

How is the raw data processed?

We calculate a consensus forecast using a simple mean average.