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UK house prices fell 1.8 per cent during 2023, according to mortgage lender Nationwide, which has forecast a similar decline or stagnation for the year ahead.
Nationwide said on Friday that prices had been flat between November and December, leaving them almost 4.5 per cent below the peak reached in the summer of 2022.
The figures reflect the impact high mortgage rates have had on would-be home buyers, after the Bank of England raised the cost of borrowing from a record low of 0.1 per cent in late 2021 to a 15-year high of 5.25 per cent.
Scotland and Northern Ireland were the only parts of the UK where prices rose in 2023, Nationwide said, while East Anglia was the weakest region, with prices dropping 5.2 per cent. Across England, prices were 2.9 per cent lower than a year ago, with southern regions underperforming those in the north.
Robert Gardner, Nationwide’s chief economist, said that even with modestly lower prices, the deposit paid by a typical first-time buyer would be 105 per cent of their average annual gross income. Meanwhile, their typical monthly mortgage payment would be 38 per cent of take-home pay, well above the long-run average of 30 per cent.
The lender described an increasingly polarised market in which the number of transactions involving a mortgage was a fifth lower than pre-pandemic levels over the past six months.
Demand from cash buyers has helped limit price declines. Nationwide’s figures, pointing to unchanged prices in December following a slight pick-up the previous month, mean the pace of annual decline has now slowed from 2 per cent in the year to November.
Although there had been “encouraging” signs for potential buyers recently, with mortgage rates edging down as investors began to bet on earlier cuts in the BoE’s benchmark rate, “a rapid rebound in activity or house prices in 2024 appears unlikely”, Gardner said.
Instead, Nationwide expects prices to remain flat or decline by up to 2 per cent in 2024, Gardner said, adding: “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.”
The mortgage lender Halifax, Nationwide’s main rival, has forecast a steeper decline in house prices of some 2 to 4 per cent in 2024.
But some property analysts are more upbeat about market conditions, noting that prices have proved far more resilient to high borrowing costs over the past year than was widely expected.
The latest official data — which includes cash purchases as well as those involving mortgages, and reflects only sales that have been finalised — shows prices fell 1.2 per cent in the 12 months to October.
The more timely Nationwide and Halifax indices, which capture deals still in the pipeline, suggest prices stabilised in recent weeks, even before an unexpectedly sharp drop in consumer price inflation raised hopes that the BoE might be able to cut interest rates earlier in 2024.
Andrew Wishart, an analyst at the consultancy Capital Economics, said it was “increasingly likely house prices avoid falls altogether next year”, helped by ongoing demand from cash buyers, limited forced sales and a further decline in borrowing costs.
