"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"
- Robert Gardner, Nationwide's chief economist
UK house prices fell by 1.8% over 2023, after December prices remained flat, according to the latest Nationwide house price index.
UK house prices ended 2023 almost 4.5% below the all-time high recorded in late summer 2022.
Regional house prices
The index shows that most regions saw house price falls in 2023, with just two areas recording annual growth.
Northern Ireland was the best performer in 2023, with prices up 4.5% over the year, while Scotland also recorded a modest annual increase of 0.5%.
East Anglia was the weakest performing region, with prices down 5.2% year-on-year. Across England overall, prices were down 2.9% compared with Q4 2022, while Wales saw a 1.9% decline.
Across northern England (which comprises North, North West, Yorkshire & The Humber, East Midlands and West Midlands), prices were down 1.8% year on year. Yorkshire & The Humber was the best performing northern region with an annual rate of change of -0.5%.
Meanwhile southern England (South West, Outer South East, Outer Metropolitan, London and East Anglia) saw a 3.4% year-on-year fall. London was once again the best performing southern region with a 2.4% annual decline.
Property type review
During 2023, Nationwide says there were signs that more buyers were looking towards smaller, less expensive properties, with transaction volumes for flats holding up better than other property types.
This may be because affordability for flats has held up relatively better as they experienced less of a price increase over the pandemic period. Average prices for flats have increased by 11.0% since Q1 2020 – around half the 22.6% increase for detached properties over the same period.
However, in Nationwide's most recent data, it has seen a convergence in the annual rate of price growth for different property types. During 2023, the price of semi-detached properties held up best, recording a 1.8% year-on-year fall. 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.
Looking back on 2023, Robert Gardner, Nationwide's chief economist, said: “Housing market activity was weak throughout 2023. The total number of transactions has been running at c10% below pre-pandemic levels over the past six months, with those involving a mortgage down even more (c20%), reflecting the impact of higher borrowing costs. On the flip side, the volume of cash transactions has continued to run above pre-Covid levels.
“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. A borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 38% of take-home pay – well above the long run average of 30%.
“At the same time, deposit requirements remain prohibitively high for many of those wanting to buy – a 20% deposit on a typical first-time buyer home equates to c105% of average annual gross income – down from the all-time high of 116% recorded in 2022, but still close to the pre-financial crisis level of 108%."
Discussing the outlook for 2024, Gardner added: “There have been some encouraging signs for potential buyers recently, with mortgage rates edging down. Investors have become more optimistic that the Bank of England has already raised rates far enough to return inflation to target and will reduce rates in the years ahead. This shift in view is important, as it has brought down longer-term interest rates, which underpin fixed mortgage rate pricing.
“Nevertheless, 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.
“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. 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 (perhaps 0 to -2%) over the course of 2024."
Tom Bill, head of UK residential research at Knight Frank, commented: “There is growing evidence that the worst of this house price correction is behind us. 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.”
Nathan Emerson, CEO of Propertymark, added: “For many 2023 has been a challenging year, and the same can be said for the impact this has had on the housing market, we have seen high inflation and elevated interest rates. This harsh mix without doubt has translated into people approaching the market with a more cautious mind.
That said, over the last few months we have seen initial positivity starting to return, with inflation steadily coming back down and interest rates holding steady. Propertymark are optimistic the peak of the turmoil has now hopefully passed; however, recovery does take time and we must remain vigilant.
It’s important to remember aspects such as almost 1.4m households across the UK have a fixed rate mortgage deal which will come to an end across the next twelve months. This has potential to cause a ‘shock to the system’ for some homeowners, so it’s vital to promote the idea of forward planning regarding investigating available mortgage deals and ensuring household budgets are well thought out.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “Similar to other recent surveys, this data from Nationwide shows more house price resilience despite some serious headwinds attempting to blow the market in a more negative direction.
“Lower inflation and strong employment figures are reducing the sting of serious price rises and providing a more balanced market as we move into 2024.
"Looking forward, we see a slightly more positive outlook, with is likely to result in more transitions and prices bumping along a little lower over the next few months at least."
