ONS: UK house prices fell 1.4% in 2023 – is now a good time to buy?

The latest Office for National Statistics data shows the housing market dropped in 2023 but there are signs of a recovery – how long will it last?

Opening a door with a key. Key is on a door lock. The keyring has a house shaped icon on the end and is shiny silver colour.
(Image credit: courtneyk)

Average house prices ended 2023 down 1.4% but appear to be rebounding slightly on a monthly basis, Office for National Statistics (ONS) data suggests. 

The latest ONS house price index shows that while average house prices fell in the 12 months to the end of 2023, they rose by 0.1% between November and December.

It is the fifth consecutive month of annual declines but the drop was smaller compared with the 2.3% decline registered for November 2023.

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The update puts average house prices at £284,691, £4,000 lower than 12 months ago.

There is a time lag with the ONS data as it is based on Land Registry submissions for sales that could have been recorded at least two months beforehand.

But it is seen as a more comprehensive view of the housing market as it contains both mortgaged and cash transactions compared with Halifax and Nationwide house price reports that focus on their own lending activity.

“House prices finished the year down compared to 2022, as the gap between what sellers would accept and buyers would pay for a home narrowed, says Nicky Stevenson, managing director at estate agency brand Fine & Country.

“However, the small uptick in prices in December lends credibility to the suggestion that the property market is in a much healthier position overall than it was at the start of last year.”

In contrast, Nationwide’s house price index for December 2023 suggested average values dropped by 1.8% in the 12 month period but it has since said property prices were up 0.7% on a monthly basis in January but remained down 0.2%.

Meanwhile, Halifax’s house price data suggests average prices actually rose 1.7% during 2023 and were up 2.5% annually in January.

This highlights the importance of checking all house price reports as they use different datasets.

How did the property market perform in 2023?

The housing market faced plenty of challenges last year from high inflation to rising interest rates.

Mortgage pricing went above 6%, denting buyer budgets and reducing demand.

This caused house price growth to slow and drop towards the end of the year.

London saw the biggest hit, according to the ONS data, with average prices down 4.8% in the 12 months to December 2023. 

Annual house price inflation was highest in the North West of England, where prices increased by 1.2%.

On a monthly basis, the South East of England’s housing market experienced a 1.9% drop in December, while the West Midlands was the best performer with average prices up 2.6%.

All property types fell in value, with terraces down the most at 2.5%, followed by flats at 2.3%.

Detached homes were down 0.8% annually, while semi-detached properties fell 0.2%.

Is now a good time to buy a property?

The housing market has changed since the final months of 2023, especially as interest rates have remained frozen at 5.25% since August.

This has boosted confidence, with property websites Zoopla and Rightmove reporting increases in demand as many consider whether now is the right time to buy a home.

“Pauses in the base rate have increased consumer confidence, and expectations are that rates could fall at some point this year, which will widen affordability and encourage more demand,” adds Stevenson.

“The news that inflation held at 4% will boost hopes that interest rates will be cut sooner than anticipated.

““The Bank of England has also reported three consecutive monthly increases in mortgage approvals as momentum builds in the housing market. 

“This pent-up demand from buyers who paused or held off on their property search means there is growing activity on the market. However, pricing attractively still remains key for sellers who want to grab attention and secure viewings and offers.

The rate of inflation is also lower while borrowers have been benefiting from a mortgage price war, with average pricing dropping closer to 5% and some best buy deals below 4%.

But the inflation rate remains high at double the Bank of Englands (BoE) 2% target and brokers are warning that lenders are becoming more cautious.

Some lenders are pulling the best mortgage deals or hiking pricing as hopes of an imminent interest rate cut from the BoE fade.

“The December 2023 government house price index shows a housing market that a couple of months ago was on course to rebound in 2024, but this now looks less clear amidst fluctuating mortgage rates seen this week,” says Rosie Hooper, chartered financial planner at Quilter Cheviot.

“The recent uptick in mortgage rates might signal a more cautious period ahead. The increased borrowing costs could dampen the momentum of house price rises, prompting potential buyers to rethink their plans in a tighter mortgage market. This adjustment could slightly cool a market that has otherwise demonstrated resilience in the face of significant economic challenges.

“The ongoing competition among lenders and serious lack of housing supply is likely to keep house prices buoyant and if and when interest rates are cut, it’s likely the property market will be off to the races again.”

Sarah Coles, senior personal finance analyst for Hargreaves Lansdown, highlights that 2024 started with an “air of optimism” in the housing market, with the Royal Institution of Chartered Surveyors reporting a rebound in buyer demand, but she warns against getting carried away.

“The fall in mortgage rates has stalled, and two-year rates have crept back up very slightly to 5.63%,” says Coles.

“Robust wage growth and higher services inflation means the Bank of England won’t be in a rush to cut rates, so mortgage prices could rise further as the market digests the fact we may not get rate cuts until the second half of 2024.

“Meanwhile, there are broader challenges on the horizon. We’re on the brink of recession, redundancies are on the rise, and there’s every chance that life gets tougher before it gets better. Throughout all the turmoil of recent years, the property market has been underpinned by a robust labour market. If we see this start to weaken, it won’t bode well."

Marc Shoffman

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.