UK house prices fall for longest period since financial crisis

UK house prices fell for the fourth consecutive month in December, marking the longest contraction since the 2008 financial crisis, as rising interest rates deterred prospective buyers.

Prices contracted 0.1 per cent between November and December, following falls every month since September, according to figures provided by Nationwide, the mortgage provider. It was the worst run of consecutive monthly contractions in 14 years and took the price of an average home to £262,068, down from the August peak of £272,751.

Annual price growth slowed to 2.8 per cent in December, down from 4.4 per cent in the previous month, hitting the lowest level since July 2020.

The annual rate of growth was also sharply down from 10.4 per cent in December last year, when property buyers enjoyed historically low borrowing costs and demand was boosted by a “race for space” following the rise of pandemic-triggered hybrid working.

Robert Gardner, Nationwide’s chief economist, said that while financial market conditions had settled after former chancellor Kwasi Kwarteng’s “mini” Budget in September, “mortgage rates are taking longer to normalise and activity in the housing market has shown few signs of recovery”.

He added: “It will be hard for the market to regain much momentum in the near term as economic headwinds strengthen, with real earnings set to fall further and the labour market widely projected to weaken as the economy shrinks.”

However the Nationwide monthly and annual figures were higher than economists’ forecasts. A Reuters poll had predicted house prices would fall by 0.7 per cent in December and grow 2.3 per cent year-on-year.

Prices are declining following a surge in mortgage rates this year, reflecting expectations of higher medium-term borrowing costs as the Bank of England contends with very high inflation.

Nationwide reported a slowdown in all regions. The most pronounced was in the South West of the UK, where annual house price growth slowed from 12.5 per cent to 4.3 per cent in the year’s final quarter.

London was again the weakest-performing English region, with annual price growth slowing to 4.1 per cent in the final three months, from 6.7 per cent in the previous quarter. However, Nationwide noted that since 2000, the average London house had increased in price by 304 per cent, in contrast with earnings rising by only 85 per cent.

Flats continued to underperform as they did throughout the pandemic. Between the first quarter of 2020 and final quarter of 2022, the average price of a detached property increased 26 per cent, or nearly £78,000, while the average price of flats rose 13.4 per cent, or around £23,000.

Most economists expect house prices to fall sharply over 2023.

Andrew Wishart, economist at the consultancy Capital Economics, said that he expected prices to contract by 12 per cent as “the jump in interest rates takes its toll” on the property market.

Tom Bill, head of UK residential research at the estate agency Knight Frank, said that “higher borrowing costs will keep transaction volumes in check and result in more widespread price declines in 2023, with values expected to fall by 10 per cent over the next two years as buyers and sellers recalculate their options”.