UK house prices experienced a 1.8% decrease in 2023 compared to last year, according to Nationwide’s latest house price index.
Northern Ireland and Scotland were notable exceptions, registering price increases during the year. In contrast, East Anglia emerged as the weakest performing region, with a 5.2% decline in house prices.
Robert Gardner, Nationwide’s chief economist, provided a detailed analysis of the housing market trends. He said: “UK house prices ended 2023 down 1.8% compared with December 2022, leaving them almost 4.5% below the all-time high recorded in late summer 2022. Prices were flat compared with November, after taking account of seasonal effects.”
Gardner highlighted that housing market activity was weak throughout 2023, with the total number of transactions running approximately 10% below pre-pandemic levels. The impact of higher borrowing costs was evident, as transactions involving a mortgage were down by roughly 20%. Despite modestly lower house prices and strong income growth, housing affordability remained a challenge, with the average mortgage payment equating to 38% of take-home pay for a typical first-time buyer, well above the long-term average of 30%.
Looking ahead to 2024, Gardner remarked: “There have been some encouraging signs for potential buyers recently, with mortgage rates edging down. However, a rapid rebound in activity or house prices in 2024 appears unlikely.” He anticipates that housing market activity will remain subdued, with house prices likely recording a small decline or staying broadly flat over the year.
The regional house price data showed declines in most areas except Northern Ireland and Scotland. In England, prices were down by 2.9%, and Wales saw a 1.9% decline. The disparity between northern and southern England was also highlighted, with the former seeing a 1.8% year-on-year decrease, while the latter experienced a 3.4% fall.
Gardner also pointed out a shift in buyer preferences towards smaller, less expensive properties, such as flats, which held up better in transaction volumes compared to other property types.
Reaction
Stephen Perkins, managing director at Norwich-based Yellow Brick Mortgages:
“Though prices were flat in December, demand this month has been anything but. December is usually quiet but the first three weeks of this month saw buyers emerging left, right and centre.
“Demand was much higher than usual and did not drop off as early for the festivities as in previous years. As ever, there are far too few properties available for the growing swell of interested buyers to purchase.
“After poor GDP figures and positive inflation data in December, the market is expecting base rate reductions before the summer, despite what the Bank of England is sign-posting.
“This could help rejuvenate the housing market in early 2024 as lenders should be confident to reduce their fixed rates in a January sale. Yes, a rapid rebound in prices is unlikely but consumer confidence is getting stronger by the day.”
Emma Jones, managing director at Frodsham-based Whenthebanksaysno.co.uk:
“Though prices were in the red during 2023, things are definitely starting to improve. This has been no ordinary December, with demand remaining high right until the last few days before Christmas.
“For now, buyers are still holding the cards but this may change in the months ahead if mortgage rates continue to tumble. Should the Bank of England cut rates then all bets are off. Any support from the Government for first-time buyers will pour more fuel onto the fire of demand. After a subdued 2023, 2024 is shaping up to be a much more dynamic year for the property market.”
Gary Bush, director at the Potters Bar-based broker, MortgageShop.com:
“Unbelievably, on some properties the bidding wars are back. Though undesirable properties are still taking a hit, sought-after properties that came to market in late November and December are now having very good early viewings and people bidding against each other to secure purchases. December was busier than expected and January will see property viewings increase further.
“The market now needs more sellers of good quality premises bringing their homes to market. Having heard the Chancellor’s budget plans, predictions of a drop in the Bank of England base rate by at least March 2024 are now looking even more likely leading up to the General Election. With fixed mortgage rates now coming available with a three in front of them, 2024 looks likely to be a good year for the UK property market.”
Mike Staton, director at Mansfield-based broker, Staton Mortgages:
“The first three weeks of December were the busiest run-up to Christmas we have had on record. A combination of a mortgage price rate war and a general acceptance that the era of ultra-low rates is unlikely to ever come back is bringing buyers out of their shells.
“With this acceptance becoming more widespread, I can see an increased demand for purchases in 2024. I also expect to see a lot of people who fixed their mortgage in a mad panic rush at rates in excess of 6% biting the bullet and paying off the excessive early redemption charges to return to a much lower rate.”
Justin Moy, managing director at Chelmsford-based mortgage broker, EHF Mortgages:
“The technical recession the UK is very possibly now in, on top of much higher mortgage rates, are certainly contributing to the price challenges within the property market. However, lenders are working overtime to improve rates and affordability models to try and see out this current trough of property prices.
“With over 1.4 million borrowers coming off ultra-low rates in 2024, we will see more financial issues before the upturn kicks in but sentiment is definitely improving and we all need to see out that storm before improvements with prices and rates truly make a difference.”
Ken James, director at London-based mortgage broker, Contractor Mortgage Services:
“Strong winds are pushing us closer to 2024 and the start of next year could be a very positive one as the momentum we saw at the tail end of 2023 grows. Buyers who were previously sat on the fence have seen mortgage rates falling, encouraging them to make the decision to act.
“Demand for mortgages rose materially in December and even now, in-between Christmas and the New Year, we are getting enquiries, which is a great litmus test of the confidence emerging. Rates, however, need to continue to improve and if the Bank of England does make a rate cut earlier than expected this should fuel lower swap rates and inject real life into the mortgage market.”
Graham Cox, founder at Bristol-based broker, Self Employed Mortgage Hub:
“I still believe house prices will fall at least 5% in 2024 due to a looming recession caused by the Bank of England. As a knee-jerk response to being asleep at the wheel when inflation first reared its ugly head, they’ve tightened monetary policy far too aggressively. To prevent a severe recession, the Bank should reverse course with an early interest rate cut. If they wait until the summer, the damage will be done and jobs and businesses will be lost unnecessarily.”
Rohit Kohli, director at the Romsey-based broker, The Mortgage Stop:
“Many of the prophets of doom predicting a collapse in house prices have disappeared or are now reworking their numbers. The property market has an in-built resilience due to the lack of housing stock and in December that was boosted by demand right up until the day before Christmas.
“The lack of supply will further support prices in 2024, although high-end properties continue to see a reduction in their asking price and are still proving harder to sell. With a potential recession on the cards, it’s likely we’ll see some form of action taken by the Bank of England to try to stimulate growth in the first half of 2024, which will likely bolster prices further.”
Elliott Culley, director at Hayling Island-based Switch Mortgage Finance:
“The positive trend in mortgage rates over the past two months has led to an increase in first-time buyer enquiries and we had a very busy December. There is still a lack of affordable housing so it’s likely we will see an increase in house prices over the next month or two whilst rates continue to bottom out. Any base rate reductions will add further fuel to the fire and the property market will start to recover as a result. 2024 is looking promising for the property market.”
Tomer Aboody, director of property lender MT Finance:
“A drop in property prices in 2023 is no surprise due to the continued uncertainty in mortgage rates and increased cost of living, making potential buyers much more cautious when it came to making a move. This, we have to remember, is on the back of an incredibly positive and strong 2022, where we saw prices hitting record figures.
‘With the year ending in better financial circumstances than it began as rates increases have paused and inflation figures have come down, there is much more confidence in the market.
“Hopefully, with further confidence in 2024 and possibly some government intervention over stamp duty, the market can bounce back.”
Anna Clare Harper, CEO of sustainable investment adviser GreenResi:
“House prices fell 1.8% in the past year, and the ‘problem’ for many is that house prices are highly emotive. A 1.8% nominal house price fall (which of course reflects a much higher real fall) is expected and deliberate.
“Firstly, higher interest rates are designed to reduce demand and therefore the rate of price increases. Secondly, higher interest rates have a stronger impact on ‘affordability’ than house prices themselves do. So, the plan of higher interest rates is working as a tool to reduce inflation in the housing market.
“In reality, this is a time of opportunity for those looking to buy at more realistic prices as competition is much reduced.
“Investors are picking up deals through auctions, from the major portals and from contacts. The best deals to be had are quality properties in low risk, high-growth geographies where the gap between asking prices and offers accepted (the bid-ask spread) is widest because vendors need to sell.”
Nathan Emerson, CEO of Propertymark:
“For many 2023 has been a challenging year, and the same can be said for the impact this has had on the housing market, we have seen high inflation and elevated interest rates. This harsh mix without doubt has translated into people approaching the market with a more cautious mind.
“That said, over the last few months we have seen initial positivity starting to return, with inflation steadily coming back down and interest rates holding steady. Propertymark are optimistic the peak of the turmoil has now hopefully passed; however, recovery does take time and we must remain vigilant.
“It’s important to remember aspects such as almost 1.4m households across the UK have a fixed rate mortgage deal which will come to an end across the next twelve months. This has the potential to cause a ‘shock to the system’ for some homeowners, so it’s vital to promote the idea of forward planning regarding investigating available mortgage deals and ensuring household budgets are well thought out.”
