Average property prices ended down 1.8% during 2023 as the cost of living crisis and high mortgage rates weighed on the housing market throughout the year, the latest Nationwide House Price Index has revealed.
A housing market slowdown was expected in 2023 as high inflation combined with rising interest rates and increased mortgage pricing weighed on buyer budgets.
Nationwide’s data, based on its own mortgage lending activity, shows the average property price ended the year at £257,443.
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The figure was flat on a monthly basis.
Most house price reports showed a drop in average values towards the end of 2023, while Rightmove asking price data shows sellers are listing homes for lower than usual and Zoopla has recorded high levels of discounts on property adverts as homeowners struggle to sell.
Mortgage pricing has started to drop as inflation slowed towards the end of the year, raising hopes of an interest rate cut.
But Nationwide isn’t too optimistic about a housing market recovery.
Robert Gardner, Nationwide's chief economist, said: “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.”
Most parts of the UK saw average prices fall during 2023, according to Nationwide.
Its data shows East Anglia was the weakest performing region with prices down 5.2% over the year.
Scotland and Northern Ireland bucked the trend, with prices up 0.5% and 4.5% respectively during 2023.
The data is based of Nationwide’s mortgage lending activity so will be reflective of the value of transactions and the typical areas in lends in.
Prices were down 1.8% annually across northern England, where Yorkshire & The Humber was the best performing part despite prices dropping by 0.5%.
Southern England saw a 3.4% year-on-year fall. There was a 2.4% annual price drop in London.
The price of semi-detached properties held up best, recording a 1.8% year-on-year fall, according to Nationwide.
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.
Karen Noye, mortgage expert at Quilter highlights that the market ended 2023 without the crash that some commentators had predicted, but risks remain.
“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,” she says.
“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.”
What will happen to house prices in 2024?
A further slowdown in prices is expected this year.
Nationwide has forecast that prices will either be flat or will drop by 2% during 2024.
“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,” adds Gardner.
“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.”
Zoopla is also predicting a 2% decline but Halifax has predicted a more pessimistic fall of between 2% and 4% in 2024 due to economic market conditions and "affordability pressures."
But Tom Bill, head of residential research at property brand Knight Frank is more hopeful, especially with a general election on the horizon.
"There is growing evidence that the worst of this house price correction is behind us," he says.
"As inflation falls, downwards pressure on mortgage rates means demand should strengthen and transaction numbers will move closer to their longer-term norms in 2024.
"A tight jobs market, the availability of longer mortgages, the fact more homes are owned outright than with a mortgage and the absence of forced selling due to tougher mortgage stress-testing rules since the global financial crisis have all helped avoid steeper price declines as interest rates normalise.
"Pre-election giveaways may boost sentiment further next year although the UK housing market is likely to stutter ahead of the vote itself.”
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