UK house prices fall as cost of living crisis and higher interest rates slow housing market – business live

UK house prices have now dropped for four months running, points out Victoria Scholar, head of investment at interactive investor:

“British house prices fell by 1.5% in December month-on-month according to the latest Halifax house price index. This was the fourth consecutive monthly declined but an improvement on November’s 2.4% shrinkage. Year-on-year annual house price growth slowed to the lowest level since October 2019 at 2%, more than halving versus November growth of 4.6%.

All nations and regions suffered an annual growth rate slowdown in the final month of 2022. The average UK property price now stands at £281,272 down from £285,425 last month with Halifax forecasting an 8% drop in house prices over the year.

But although house prices are expected to continue to ‘soften’, although the shortage of properties on the market will prevent a deeper fall, Scholar adds:

Although house prices remain historically elevated, 11% higher than at the start of 2021, as the UK heads towards a recession, house prices are expected to soften further. The housing market looks set to struggle under the weight of a rising mortgage rates and broader inflationary pressures such as the high cost of energy and food which are squeezing the consumer and weighing on housing demand.

Many individuals and households are holding off from purchasing properties on the back of slimmed down budgets and in the hope that mortgage rates and property prices become more affordable down the line. Offsetting an even steeper slide in the UK property market is the chronic shortage of houses and the macroeconomic backdrop of build cost inflation.

UK housebuilders like Persimmon and Barratt Developments have had a very tough year in terms of share price performance, down over 50% and 40% respectively.”

Halifax’s house price index is turning 40, a milestone – and like many 40-somethings, it’s seen quite a lot of change.

The Halifax House Price Index was established in January 1983, when the average UK house price was £26,188 and Bank of England base rate was 11%.

Since then, average house prices have risen to £281,272, while Bank Base Rate is currently 3.5%.

Halifax reports:

While the cost of buying a home was at its lowest when the Index began, looking over the past four decades, prices peaked in August 2022 at £293,992.

Regionally, London was the most expensive place to buy a home in early 1983, as it is today. Properties in the capital have risen from an average £36,056 in early 1983 to £541,239 today.

Yorkshire and the Humber was the cheapest place to buy a property when the Index began, at £20,332 vs £205,466 now.

In the North East, average properties are £169,980 today, up from £21,494 in Q1 1983.

In Scotland, the average property in the first quarter of 1983 was £26,411 vs £200,166 today.

In Wales, the average home now costs £217,547, compared to £21,388 forty years ago.

While in Northern Ireland, average prices have risen from £23,383 in the first quarter of 1983 to £183,825 today.

After ending 2022 on a weak note, how will the housing market fare in 2023?

Halifax Mortgages director Kim Kinnaird predicts a slowdown:

“As we enter 2023, the housing market will continue to be impacted by the wider economic environment and, as buyers and sellers remain cautious, we expect there will be a reduction in both supply and demand overall, with house prices forecast to fall around 8% over the course of the year.

It’s important to recognise that a drop of 8% would mean the cost of the average property returning to April 2021 prices, which still remains significantly above pre-pandemic levels.”

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK house prices fell last month as the cost of living crisis, and rising interest rates, hit demand for property.

Lender Halifax reports that the average house price fell by 1.5% in December, following a 2.4% drop in November. This pulled the annual growth rate down to 2%, from 4.6% a month earlier.

Annual growth slowed across all nations and regions during December, Halifax reports, pulling the price of the average UK property down to £281,272.

The squeeze on household incomes, and the rise in borrowing costs this year, are slowing the market, explains Kim Kinnaird, director of Halifax Mortgages:

“As we’ve seen over the past few months, uncertainties about the extent to which cost of living increases will impact household bills, alongside rising interest rates, is leading to an overall slowing of the market.

Kinnaird points out that the housing market was a mixed picture in 2022, with prices heading south since September (the month of the mini-budget, which drove up mortgage rates).

We saw rapid house price growth during the first six months, followed by a plateau in the summer before prices began to fall from September, as the impact of cost of living pressures, coupled with a rising rates environment, began to take effect on household finances and demand.

But following the surge in prices since the start of the pandemic, average house prices are still rather higher than a few years ago.

Kinnaird says:

The cost of the average home remains high – greater than it was at the start of 2022 and over 11% more than house prices at the beginning of 2021.

The first half of last year was a very strong period for sellers, between January 2022 and August 2022, the average cost of a home rose by over £17,000 to £293,992 (growth of 6%), setting a new record high.

Also coming up today

UK rail passengers face another day of travel disruption as thousands of workers strike in the ongoing dispute over jobs, pay and conditions.

Members of the Rail, Maritime and Transport union (RMT) who work at Network Rail and at 14 train operators will strike for 48 hours, following yesterday’s industrial action by train drivers in the Aslef union which caused widespread disruption.

Investors are bracing for the latest US jobs report later today, which will guide how aggressively the Federal Reserve will continue to raise interest rates.

The Non-Farm Payroll is predicted to rise by around 200,000 jobs in December, after increasing by 263,000 the previous month.

We also get an initial estimate of Eurozone inflation for last month – economists expect a small drop, to 9.7% per year from 10.1% in November – and a healthcheck on UK builders.

The agenda

• 7am GMT: Halifax UK house price index for December

• 7am GMT: German factory orders for November

• 9.30am GMT: UK construction PMI report for December

• 10am GMT: Eurozone ‘flash’ inflation report for December

• 1.30pm GMT: US Non-Farm Payroll report for December