"The total number of transactions has been running at c10% below pre-pandemic levels over the past six months, with those involving a mortgage down even more (c20%)"
- Robert Gardner, Nationwide's chief economist
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, according to the latest Nationwide house price index.
Prices were flat compared with November, after taking account of seasonal effects.
Regional house prices
The index shows that most regions saw house price falls in 2023, with just two areas recording annual growth.
Northern Ireland was the best performer in 2023, with prices up 4.5% over the year, while Scotland also recorded a modest annual increase of 0.5%.
East Anglia was the weakest performing region, with prices down 5.2% year-on-year. Across England overall, prices were down 2.9% compared with Q4 2022, while Wales saw a 1.9% decline.
Across northern England (which comprises North, North West, Yorkshire & The Humber, East Midlands and West Midlands), prices were down 1.8% year on year. Yorkshire & The Humber was the best performing northern region with an annual rate of change of -0.5%.
Meanwhile southern England (South West, Outer South East, Outer Metropolitan, London and East Anglia) saw a 3.4% year-on-year fall. London was once again the best performing southern region with a 2.4% annual decline.
Property type review
During 2023, Nationwide says there were signs that more buyers were looking towards smaller, less expensive properties, with transaction volumes for flats holding up better than other property types.
This may be because affordability for flats has held up relatively better as they experienced less of a price increase over the pandemic period. Average prices for flats have increased by 11.0% since Q1 2020 – around half the 22.6% increase for detached properties over the same period.
However, in Nationwide's most recent data, it has seen a convergence in the annual rate of price growth for different property types. During 2023, the price of semi-detached properties held up best, recording a 1.8% year-on-year fall. Meanwhile, flats and terraced houses both saw a 2.1% annual decline, while detached properties were the weakest performing with prices down 2.7% over the year.
Looking back on 2023, Robert Gardner, Nationwide's chief economist, said: “Housing market activity was weak throughout 2023. The total number of transactions has been running at c10% below pre-pandemic levels over the past six months, with those involving a mortgage down even more (c20%), reflecting the impact of higher borrowing costs. On the flip side, the volume of cash transactions has continued to run above pre-Covid levels.
“Even though house prices are modestly lower and incomes have been rising strongly, at least in cash terms, this hasn’t been enough to offset the impact of higher mortgage rates, which in recent months were still more than three times the record lows prevailing in 2021 in the wake of the pandemic.
“As a result, housing affordability has remained stretched. A borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 38% of take-home pay – well above the long run average of 30%.
“At the same time, deposit requirements remain prohibitively high for many of those wanting to buy – a 20% deposit on a typical first-time buyer home equates to c105% of average annual gross income – down from the all-time high of 116% recorded in 2022, but still close to the pre-financial crisis level of 108%."
Discussing the outlook for 2024, Gardner added: “There have been some encouraging signs for potential buyers recently, with mortgage rates edging down. Investors have become more optimistic that the Bank of England has already raised rates far enough to return inflation to target and will reduce rates in the years ahead. This shift in view is important, as it has brought down longer-term interest rates, which underpin fixed mortgage rate pricing.
“Nevertheless, a rapid rebound in activity or house prices in 2024 appears unlikely. While cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, consumer confidence remains weak and surveyors continue to report subdued levels of new buyer enquiries. Moreover, while markets are projecting that the next Bank Rate move will be down, there are still upward risks to interest rates. Inflation is declining, but measures of domestic price pressures remain far too high.
“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, with housing market activity remaining fairly subdued in the interim. If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline or remain broadly flat (perhaps 0 to -2%) over the course of 2024."
Mark Harris, chief executive of mortgage broker SPF Private Clients, commented: “It is remarkable that house prices have proven to be so resilient over the past 12 months given soaring mortgage costs and consecutive interest rate hikes in the first half of the year.
"However, while prices have dipped slightly, transaction numbers have suffered as borrowers have struggled to meet affordability criteria. Finding a deposit remains a huge challenge for first-time buyers in particular.
"With inflation falling further than expected and on course to hit the Bank of England’s 2 per cent target in the first half of next year, increasingly it appears as though interest rates have peaked and speculation is increasing as to when the first reduction will come.
"The direction of travel for new mortgage rates is downwards, with a number of lenders making reductions in the run-up to Christmas and a sub-4 per cent five-year fix coming onto the market for the first time in a long while. While borrowers must get used to a higher interest rate environment, with increased appetite from lenders to build their lending numbers after what has been a disappointing 2023, there could be some tempting January sales to entice borrowers."
Karen Noye, mortgage expert at Quilter, added: “Figures from Nationwide this morning reveal a sluggish end to what has been a challenging year for the housing market. House prices saw no change in December and fell by 1.8% year-on-year due to the ongoing economic pressures, but this is still considerably less than the drastic fall many would have predicted this time last year.
“Looking ahead to 2024, the wider narrative appears to be that of cautious optimism. We have reached the end of 2023 without the appearance of a housing market crash which many had predicted following the mini-budget. Mortgage rates have risen rapidly throughout the year and cost-of-living pressures forced many people to put their plans to move home or take their first step onto the property ladder on hold, but the lack of housing stock and soaring rent prices has resulted in a remarkably resilient market, though demand has certainly been subdued.
“For some households, however, things will not be quite so rosy and there is still a risk that we could see more people forced to sell their homes if the financial strain proves too much to bear. The Bank of England opted to hold interest rates at its latest monetary policy decision which will heap pressure onto households next year as more fixed rate deals come to an end, and we could see potential buyers hold off in the hopes of securing cheaper deals in the future. House prices have held up relatively well this year, but we are not yet completely out of the woods.
“As we move into 2024, interest rates are likely to remain elevated for some time, particularly if the BoE maintains its ‘higher for longer’ stance. However, inflation is heading in the right direction so we could start to see some movement towards the second half of the year which may tempt prospective home movers and first time buyers and help buoy the market."
