UK house prices see their biggest December drop in four years

The average asking price of UK homes fell 2.1% over the last month according to Rightmove’s house price index – the biggest December dip in four years.

According to the online property portal, the average asking price of properties on its platform was £359,137 in December, down £7,862 from November.

The decrease follows a 1.1% dip in November, and adds to the growing amount of data showing the UK property market is cooling down after two years of rapid house price growth.

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Last week Halifax’s house price index showed the biggest dip in UK house prices since 2008. The lender reported a 2.3% fall in house prices, and a decrease in the annual rate of growth to 4.7% from 8.2% in October.

The dip is “an understandable short-term reaction to the economic turmoil and unexpectedly rapid mortgage rate rises and reduction in availability of mortgage products that we saw in late September and October, before things began to settle down,” says Tim Bannister, Rightmove’s director of property science.

“Despite this we end the year with average asking price growth of 5.6%, which is only slightly lower than the 6.3% last year.”

Why are UK house prices falling?

Kwasi Kwarteng’s infamous mini-Budget prompted a steep hike in borrowing rates. This in turn sent mortgage rates to over 6%, peaking at 6.65%, the highest they had been since the financial crisis in 2008, making many buyers question whether now was a good time to buy a house.

While they have since begun to decrease – the average two-year mortgage rate is 5.99% and the average five-year mortgage rate is 5.74% – they are much higher than they were this time last year.

“It’s understandable that some buyers are distracted, not only by the festive season, but also by the thought that they may get a better fixed-rate mortgage deal and a more stable outlook by waiting until the new year,” said Bannister.

“Our data suggests that there are many ready-to-go movers out there waiting for what they feel to be the right time to enter the market in 2023.”

Interest rates are likely to remain high for the foreseeable future. The next Bank of England meeting is on 15 December, and City analysts believe it will hike rates further from the current 3% as it tries to rein in rising inflation.

As well as higher borrowing rates we’re all having to contend with the rising cost of living, which is being driven by higher energy prices and rising food inflation.

Where next for UK house prices?

UK house prices saw two years of booming growth as people moved to bigger houses and away from cities throughout the pandemic, taking advantage of the stamp duty cuts introduced by Rishi Sunak.

Kwarteng introduced even more generous cuts in September, however current chancellor Jeremy Hunt has said these will come to an end in 2025.

Rightmove estimates average asking prices will fall 3% next year as “economic headwinds continue to soften activity” and normalise the market. It expects the market to return towards a pre-pandemic level throughout next year.

Meanwhile the Office for Budget Responsibility has forecast a 9% decrease in house prices by 2024.

Where house prices go will be determined by a series of external factors, including where interest rates go from here, whether energy prices continue to rise, and the general cost of living.