Annual house price growth slowed to 1.1%, from 2.8% in December, according to Nationwide’s latest House Price Index.
The average price now stands at £258,297 compared to December’s recorded average of £262,068.
According to the Index, January saw a further monthly decline, with prices now 3.2% below August’s peak.
Affordability pressures remained high in London and the south of England, while Scotland and the North continued to be the most affordable regions across the UK.
Robert Gardner, Nationwide’s Chief Economist, said: “The start of 2023 saw a further slowing in annual house price growth to 1.1%, from 2.8% in December.
“Moreover, January saw a further monthly price fall (-0.6%), which left prices 3.2% lower than their August peak (after taking account of seasonal effects).
“However, there are some encouraging signs that mortgage rates are normalising, but it is too early to tell whether activity in the housing market has started to recover.
“The fall in house purchase approvals in December reported by the Bank of England largely reflects the sharp decline in mortgage applications following the mini-Budget.”
He added: “It will be hard for the market to regain much momentum in the near term as economic headwinds are set to remain strong, with real earnings likely to fall further and the labour market widely projected to weaken as the economy shrinks.
“As we highlighted in our recent affordability report, the biggest change in terms of housing affordability for potential buyers over the last year has been the rise in the cost of servicing the typical mortgage as a result of the increase in mortgage rates.
“Should recent reductions in mortgage rates continue, this should help improve the affordability position for potential buyers, albeit modestly, as will solid rates of income growth (wage growth is currently running at around 7% in the private sector), especially if combined with weak or negative house price growth.”
Gardner continued: “Nevertheless, the overall affordability situation looks set to remain challenging in the near term.
“Saving for a deposit is proving a struggle for many given the rising cost-of-living, especially those in the private rented sector where rents have been rising at their strongest pace on record (on data extending back to 2005 for England).
“High house prices relative to earnings mean deposit requirements remain a major challenge.
“Moreover, the Help to Buy Equity Loan scheme that helped those with a smaller deposit buy a new build property is due to end in March.
He concluded: “However, the Government’s mortgage guarantee scheme, which helps to secure the availability and lower the cost of higher loan-to-value mortgages, has been extended until the end of 2023.”
Reaction:
Nicky Stevenson, managing director at national estate agent group Fine & Country:
“Subdued buyer demand is the strongest factor dampening house price growth, though average prices remain higher than they were a year ago, and 12% higher than they were in January 2021.
“Although buyers have returned to the market in greater numbers since the shocks of the mini-Budget last autumn, the Bank of England saw home loan approvals ease for the fourth consecutive month in December.
“A month without a base rate rise – when it finally comes – could be enough to produce a quick turnaround in home-buyer numbers.
“As the Bank of England weighs up whether to make a tenth successive hike in interest rates tomorrow, buyers will be hoping lenders have factored another rise into their products already. If mortgage rates remain stable, this could be enough to convince many people to resume their property search.”
Jason Ferrando, CEO of easyMoney:
“Much like the rest of us, the property market usually takes a little time to find its feet in January following a festive lull in activity.
“So a slightly more sluggish rate of house price growth is only to be expected.
“While another monthly reduction in the rate of house price growth further adds to the narrative of doom and gloom that enveloped the market during the closing stages of 2022, the outlook for this year is already predominantly more positive.
“The market as a whole seems to be marching on with a renewed spring in its step and while it may take time for this positivity to stimulate topline market statistics, we’re already seeing buyers and sellers acting with far greater intent.”
Marc von Grundherr, director of Benham and Reeves:
“The decline in house prices seen in recent months is more akin to the market tripping over its shoelace than falling off a cliff edge and we’ve simply not seen the catastrophic property market decline that was so widely predicted during the latter stages of last year.
“Yes, buyers are treading with caution and sellers are having to adjust their price expectations in line with this changing market, but our appetite for homeownership remains strong and we continue to see activity despite wider economic turbulence.”
James Forrester, managing director of Barrows and Forrester:
“Home sellers are continuing to secure a very good price in current market conditions and it’s important to remember that although house prices have started to cool, they remain there or thereabouts when compared to the meteoric highs of the pandemic market boom.
“So not only is the current correction very much a return to market normality, it’s fair to say that this return is taking far longer than predicted as the market continues to defy wider expectations against what are otherwise strong economic headwinds.”
Chris Hodgkinson, managing director of House Buyer Bureau:
“While the market remains fairly strong, we can expect the herd mentality of the nation’s homebuyers to continue to dampen house price growth.
“During the pandemic boom, homebuyers were falling over themselves to offer above the odds to secure a home.
“This tide has very much turned and while there remains a robust level of market activity, we’re seeing a more reserved approach during the negotiation stage.
“As a result, the nation’s sellers are meeting in the middle and accepting a slightly lower price for their home, but this is very much a market correction rather than a slippery slope of house price depreciation.”
Jonathan Samuels, CEO of Octane Capital:
“The landscape is already considerably more settled when compared to the turmoil that followed last September’s mini-Budget and while buyers may still be contending with higher mortgage repayments, the cost of borrowing has started to stabilise.
“This has allowed those who are in the market to reassess just what they can afford before pushing on in search of a property, instead of abandoning their plans altogether and so we can expect a slower, but more consistent property market performance going forward.”
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown:
“The housing market continues to slow with annual house price growth now standing at just 1.1%. The heady days of the pandemic race for space feel like a lifetime away and it won’t be long until we see house price growth going backwards. It’s been a truly turbulent year for homeowners and would-be buyers as the cost-of-living crisis pushed our finances to their limit meaning many people had to put off the prospect of buying because they just couldn’t afford it.
“Added to this the aftermath of the mini-Budget pushed mortgage rates skyward causing many would-be buyers to back away from the market. There are signs mortgage rates are starting to come down but it’s going to take a lot to tempt people back into the market and Bank of England data published yesterday showed mortgage approvals continuing to fall.
“Looking ahead it’s hard to see anything changing for the better any time soon. Budgets are still squeezed putting a brake on people trying to save a deposit that already takes years to build. The data shows someone in London wanting to save a 20% deposit could be saving for 15 years or more. Predictions of house price falls this year will also prompt would-be buyers and sellers to hold off on a purchase until the outlook looks a bit clearer. Added to this the prospect of a recession continues to loom large with the chance of potential job cuts putting people off taking the plunge and going after that dream property.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“It was inevitable that house prices would continue slowing after such a strong run for most of last year but these respected numbers don’t tell the full story from the high street.
“They reflect activity at the end of last year when business was slowing quite rapidly after the mini-Budget shock but was still being supported by stock shortages.
“The fizz has certainly left the market, leaving behind more serious needs-driven as opposed to discretionary buyers, coming to terms with more stable mortgage rates and greater balance between supply and demand.
“Looking forward, the outlook for house prices remains fairly steady with no expectation of any dramatic change.”
Tomer Aboody, director of property lender MT Finance:
“As mortgage rates have been climbing, we have seen a slowdown in the marker with both buyers and sellers waiting to see some stability.
“Higher rates, coupled with higher inflation, is affecting affordability and in turn either forcing buyers to be more patient or manage their purchase expectations.
“Some positive signs can be seen with swap rates reducing and therefore long-term upside in the market, especially if inflation can be halved as the Prime Minister has vowed to do.”
