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UK house prices fell in the second half of 2023 driven by weakness in the London market, according to official data, underscoring the continuing pressure of higher borrowing costs.
Average UK house prices decreased 1.4 per cent year on year in December 2023, the Office for National Statistics said on Wednesday. This was smaller than a revised fall of 2.3 per cent in November 2023, but marked six consecutive months of contraction.
The figures confirm the effect of higher borrowing costs which have affected the property market for most of last year. However, more timely yet less comprehensive data indicates tentative signs of improvements as mortgage rates have eased.
Gabriella Dickens, economist at Pantheon Macroeconomics, said she expected the ONS house price index to continue to decline in the next two months, but said it was likely to later “start to rebound, as the fall in mortgage rates and recovery in real incomes boosts affordability”.
House prices were little changed month on month, taking the average to £285,000 in December — £4,000 lower than December 2022 and £7,000 down from the peak reached in September 2022.
London registered the biggest contraction of any region, with prices down by an annual rate of 4.8 per cent. However, the fall was smaller than the 5.5 per cent in November and the capital remained the most expensive part of the country with the average home costing £508,000.
Official data is the most comprehensive measure of UK house prices because it includes cash purchases, but it is based on deals finalised in December, which might have been agreed several months earlier.
More recent house price indices, based on deals approved in the latest month from mortgage providers Halifax and Nationwide, showed a sharp increase month on month in January, with Halifax indicating the fastest annual increase in one year.
Last week a survey of UK estate agents reported the first rise in house sales and demand since 2022. Earlier in the month the Bank of England reported that mortgage approvals rose to a six-month high in December.
Quoted mortgage rates have been easing from their record high reached in the summer on expectations that the BoE will cut interest rates from the current 16-year high of 5.25 per cent to 4.5 per cent by the end of the year.
Markets have increased their bets on interest rate cuts after official data showed inflation coming in lower than expected at 4 per cent in January.
Scotland, the North West and Wales bucked the annual trend posting increases of 3.3 per cent, 1.2 per cent and 1.4 per cent, respectively, ONS data showed.
Private rental prices rose by a record 6.2 per cent in the 12 months to January, the highest since 2016 and unchanged for the second consecutive month, according to a separate ONS release on Wednesday.
Justin Moy, managing director at broker EHF Mortgages, said the figures made “grim news for tenants”. However, as mortgage rates continued to soften “rents will hopefully stay flat or even edge down in the coming months”.