Stay informed with free updates
Simply sign up for myFT Digest of UK house prices – delivered straight to your inbox.
UK house prices fell in the second half of 2023 driven by weakness in the London market, according to official data, underscoring the continuing pressure of rising borrowing costs.
Average UK house prices fell by 1.4 per cent year-on-year in December 2023, the Office for National Statistics said on Wednesday. This was lower than the revised 2.3 per cent fall in November 2023, but represented six consecutive months of contraction.
These numbers confirm the impact of high borrowing costs that affected the real estate market during most of last year. However, more timely but less comprehensive data indicate temporary signs of improvement as mortgage rates decline.
Gabriella Dickens, an economist at Pantheon Macroeconomics, said she expected the ONS house price index to continue to fall over the next two months, but said it was likely to later “start to recover, as lower mortgage rates and a recovery in real incomes reinforce “Affordability.”
House prices were little changed month-on-month, with the average reaching £285,000 in December – £4,000 lower than in December 2022 and £7,000 lower than the peak reached in September 2022.
London recorded the largest contraction ever of any region, with prices falling at an annual rate of 4.8 per cent. However, the decline was smaller than the 5.5 per cent recorded in November, and the capital remained the most expensive part of the country with the average cost of a home standing at £508,000.
The official data is the most comprehensive measure of UK house prices because it includes cash purchases, but is based on deals completed in December, which may have been agreed several months earlier.
The latest house price indexes, based on deals approved in the last month from mortgage lenders Halifax and Nationwide, showed a sharp month-on-month increase in January, with Halifax reporting the fastest annual increase in one year.
A survey of UK estate agents last week reported the first rise in home sales and demand since 2022. Earlier in the month, the Bank of England reported that mortgage approvals rose to a six-month high in December.
Mortgage interest rates have fallen from a record high reached in the summer amid expectations that the Bank of England will cut interest rates from a 16-year high of 5.25 percent to 4.5 percent by the end of the year.
Markets increased their bets on interest rate cuts after official data showed that inflation was lower than expected at 4 percent in January.
Scotland, the North West and Wales bucked the annual trend, recording increases of 3.3 per cent, 1.2 per cent and 1.4 per cent respectively, ONS data showed.
Private rental prices rose by a record 6.2 per cent in the 12 months to January, the highest level since 2016 and unchanged for the second month in a row, according to a separate Office for National Statistics statement on Wednesday.
Justin Moy, managing director at property broker EHF Mortgages, said the figures represented “bleak news for renters”. However, with mortgage rates continuing to decline, “we are hopeful that rents will remain steady or even decline in the coming months.”
