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UK house prices fall by 1.8% during year amid higher mortgage costs

Property market weak, says Nationwide, which expects prices to remain flat or drop slightly in 2024

UK house prices fell by 1.8% during 2023, according to the closely watched Nationwide house price index, with activity in the property market described as weak throughout the year.

Nationwide put the fall down to higher mortgage borrowing costs, which have remained more than three times higher than the record lows of 2021 despite recent easing.

Almost all regions of the UK registered falls, barring Northern Ireland, where prices rose by 4.5%, and Scotland, up slightly by 0.5%.

Prices fell everywhere else, with England registering a 2.9% drop and house prices down 1.9% in Wales.

The decline was greater in the south than in the north.

Across northern England, comprising the north, north-west, Yorkshire and the Humber, east Midlands and West Midlands regions, prices fell by 1.8%, with the smallest decline, of 0.5%, in Yorkshire.

However, in southern England, made up of the south-west, outer south-east, outer metropolitan, London and East Anglia regions, values fell by 3.4%.

London was the most resilient of the southern regions, with a 2.4% annual decline, but the largest decline of any region in the UK was in East Anglia, down 5.2%.

Overall, prices ended 2023 down 1.8% compared with December 2022 and are now 4.5% below their all-time high, recorded in the late summer of 2022. Nationwide expects prices to remain flat or fall slightly in 2024, compared with an estimate by the rival Halifax, which has predicted falls of up to 4%.

Separate data from HMRC underlined the picture of a weaker housing market over the past year, with residential transactions down 22% in the year to November, at 80,780.

Prices were flat month on month in December, according to Nationwide, with average house prices ending the year at £257,443.

“Housing market activity was weak throughout 2023,” said Nationwide’s chief economist, Robert Gardner.

“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.”

He said that a person on the average UK salary buying a typical first-time home with a 20% deposit would have to pay a monthly mortgage payment equivalent to 38% of their take-home pay, much higher than the long-term average of 30%.

Deposit requirements also remain “prohibitively high”, he said. The average 20% deposit on a typical first-time home equates to about 105% of average gross income, down from all-time high of 116% in 2022 but still close to the pre-financial crisis level of 108%.

Gardner said prices were unlikely to rebound strongly in 2024, with consumer confidence still weak despite easing inflation.

But he forecast that mortgage rates could come down, boosting affordability, as investors bet that the Bank of England has raised rates far enough and will reduce the base rate in years ahead.

“This shift in view is important, as it has brought down longer-term interest rates, which underpin fixed mortgage rate pricing,” Gardner said.

Nationwide’s data for 2023 indicates that buyers are setting their sights on smaller, less expensive properties, with transactions for flats holding up more than other property types.

Flats did not increase as much during the pandemic period, when outside space became more sought-after because of lockdown restrictions.

Average prices for flats have increased by 11% since the first quarter of 2020, compared with a 22.6% increase in the price of detached properties.

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