House prices record a small drop in February

ONS: Latest house price index from the government finds that house prices are slowing

Key and house key chain
(Image credit: © Getty images)

The value of the average property in the UK dropped by 0.3% in February, the latest ONS house price index.

While we have seen various dates around house prices and asking prices, this could be an indication that house prices could finally come down further in 2023.

The seasonally adjusted drop followed a fall of 0.2% in January, and is the third straight monthly decline. It means that the average value of a UK property now stands at £287,506. That’s down from its peak of £293,369 in November 2022.

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As a result of the monthly drop, the annual rate of house price growth has fallen to 5.5% from the 6.5% registered in January.

The Land Registry figures come after conflicting reports from rival price indices. For example, Halifax found that house prices have grown for three months in a row, while Nationwide reported that in March house prices dropped for the seventh straight month, and at the fastest pace since 2009.

Sarah Coles, head of personal finance at Hargreaves Lansdown, noted that the average house price is up by £16,000 on a year ago, but cautioned that there is plenty of “misery” in the latest house prices figures.

“Falls continued in February and actually picked up pace. This owes much to the fact that, as the RICS figures show, buyer demand had been falling for an impressive ten consecutive months. The Zoopla figures show that this dearth of buyers meant a huge number of sellers were being forced to cut prices in order to shift their home,” she said.

“We know that despite their best efforts, the number of properties sold in February was down by almost a fifth in a year and 4% in a month.”

How have house prices changed in different regions?

While house prices have increased by 5.5% over the last 12 months, the changes seen in different regions can vary significantly.

HM Land Registry found that the West Midlands enjoyed the most significant price growth, having risen 8.6% over the 12 months to February. It was followed by the North East (7.6%) and East Midlands (7.4%).

At the other end of the scale, prices in London have increased by an average of 2.9%, while in Scotland they have grown by only 1%.

What is next for house prices?

While house prices are likely to continue to decline, a “cliff-edge moment feels unlikely,” according to Tom Bill, head of UK residential research at Knight Frank.

He noted that the market is now entering a new normal, with mortgage rates at around the average level seen in the last 25 years.

“We expect prices to fall by a few percent this year as more financial pain enters the system but the landing will be comparatively soft thanks to a strong jobs market, savings accumulated during the pandemic, record-high levels of housing equity and the large proportion of people who move because they need to,” he continued.

The fact that inflation is remaining above 10% will heighten pressure on the Bank of England to continue increasing bank base rate, which will push mortgage rates ever higher.

Charlotte Nixon, mortgage expert at Quilter, added that persistent inflation will naturally translate into lower house prices, as disposable income is “sucked up” by higher costs, meaning would-be buyers are less willing to take on higher repayments.

She added: “That said, consumer confidence does seem to be returning as while mortgage rates are still much higher than people are used to, they have stabilised around the 4.5% mark. This will naturally have to creep up if there are further interest rate rises but for the most part homeowners are weathering these increased costs well and so far not completely disincentivising house purchases.

“Spring and summer typically represent a busy period for the housing market and the next few months will act as a bellwether for the continued health of the property market and how much demand is out there.”

John Fitzsimons

John Fitzsimons has been writing about finance since 2007, and is a former editor of Mortgage Solutions and loveMONEY. Since going freelance in 2016 he has written for publications including The Sunday Times, The Mirror, The Sun, The Daily Mail and Forbes, and is committed to helping readers make more informed decisions about their money.