House prices in the UK fell by 1.5% in December – the fourth consecutive drop but pulling back from November’s 2.3% decline which was the biggest monthly fall since 2008, latest figures from the Halifax reveal.

The annual rate of growth dropped to +2.0% (from +4.6%) leaving the typical UK property now costing £281,272 (down from £285,425 last month).

But as buyers and sellers remain cautious Halifax is expecting there will be a reduction in both supply and demand overall, with house prices forecast to fall around 8% over the course of the year.

UNCERTAINTIES

Kim Kinnaird (pictured), Director, Halifax Mortgages, says: “As we’ve seen over the past few months, uncertainties about the extent to which cost-of-living increases will impact household bills, alongside rising interest rates, is leading to an overall slowing of the market.

“The housing market was a mixed picture in 2022. We saw rapid house price growth during the first six months, followed by a plateau in the summer before prices began to fall from September, as the impact of cost-of-living pressures, coupled with a rising rates environment, began to take effect on household finances and demand.”

CONTEXT

“These trends need to be viewed in the context of historic prices. The cost of the average home remains high – greater than it was at the start of 2022 and over 11% more than house prices at the beginning of 2021.

“The first half of last year was a very strong period for sellers, between January 2022 and August 2022, the average cost of a home rose by over £17,000 to £293,992 (growth of 6%), setting a new record high.

“As we enter 2023, the housing market will continue to be impacted by the wider economic environment and, as buyers and sellers remain cautious, we expect there will be a reduction in both supply and demand overall, with house prices forecast to fall around 8% over the course of the year.”

It’s important to recognise that a drop of 8% would mean the cost of the average property returning to April 2021 prices.”

But Kinnaird stresses: “It’s important to recognise that a drop of 8% would mean the cost of the average property returning to April 2021 prices, which still remains significantly above pre-pandemic levels.”

INDUSTRY REACTION

Tom Bill, head of UK residential research at Knight Frank, says: “The first rule for anyone predicting the trajectory of house prices in 2023 should be to ignore any data from the chaotic final quarter of 2022.

“The latest data shows two things are happening at the same time. First, the effect of the mini-budget is working its way through the system, which means that monthly declines are narrowing.

“At the same time, an annual fall in house prices appears imminent, underlining how the lending landscape has changed irrespective of the mini-budget.

“As rates normalise, buyers will increasingly recalculate their financial position and house prices will come under pressure. We expect a 10% decline over the next two years, taking them back to where they were in mid-2021.”

What we’re currently seeing is an extremely over-inflated market retract, rather than collapse.”

Marc von Grundherr, Director of Benham and Reeves, says: “For the last two years, many buyers have been borrowing beyond their means to offer above the odds and beat other buyers to the punch in what has been an extremely competitive market.

“But with increasing mortgage rates adding to the cost-of-living squeeze, they are no longer acting with the same degree of over-exuberance and this is dampening the house price highs seen throughout much of the pandemic.

“However, what we’re currently seeing is an extremely over-inflated market retract, rather than collapse.

“So while there may still be a period of correction to come, the overarching expectation is that stability will return sooner, rather than later.”

Nathan Emerson, Chief Executive of Propertymark, says: “Buyers are entering a less competitive market with competition dropping by over a third, which works well in their favour, but for sellers, house prices are still approximately 6% higher than this time last year, meaning they will see a comfortable gain when looking to move.”

Jason Tebb, Chief Executive of OnTheMarket, says: “With average property prices falling once again in December, as well as the annual rate of growth slowing, the continued rebalancing of the market is evident.

“Seasonal factors are increasingly evident after two years in which the pandemic has skewed the usual norms one would expect to see in the market. Our own data shows that sellers expect it to take longer to sell their homes than has been the case in recent months, which ties in with this, although confidence remains remarkably stable.

Conditions remain challenging as the cost-of-living and mortgage rates remain higher than many have become used to.”

“Conditions remain challenging as the cost-of-living and mortgage rates remain higher than many have become used to.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “Housing market activity dropped and sales are taking longer as buyers reclaim the balance of power due principally to the cost of living and interest rate rises.

“Prices may soften further before mortgage costs fall despite recent modest reductions as concerns about job security increase. Lack of supply means prices are unlikely to fall sharply as we have found many buyers waiting until early 2023 to see if mortgage rates settle before deciding to move.”

We’re witnessing a period of adjustment as buyers reassess their purchasing power.”

James Forrester, Managing Director of Barrows and Forrester, says: “As it stands, we’re witnessing a period of adjustment as buyers reassess their purchasing power and sellers come to terms with what their home can fetch in current market conditions.

“For those hoping to sell, there remains a strong level of buyers within the market who are still willing to pay a good price. However, a level-headed approach when valuing your home is key if you wish to attract them.”

Chris Hodgkinson, Managing Director of HBB Solutions, says: “It’s clear that the Bank of England’s aggressive approach to curb inflation via nine consecutive base rate hikes is now starting to impact the property market, with mortgage approvals starting to slide, bringing property values down in the process.

“This reduction is due to the increasing cost of borrowing and with mortgage rates climbing, buyers are now finding that they can no longer overstretch financially to climb the ladder and are having to adjust their expectations accordingly.”

The market reacted favourably to the Prime Minister’s inflation-cutting pledge.”

Mark Harris, Chief Executive of mortgage broker SPF Private Clients, says: “Annual house price growth continues to slow, as activity softens and the market gradually returns to something closer to what we were used to pre-pandemic.

“The market reacted favourably to the Prime Minister’s inflation-cutting pledge and we expect five-year fixed rates to begin to look better value, although the era of sub-1% deals is over.”

It’s going to be a cold January for the housing market.”

James Briggs, Head of Personal Finance Intermediary Sales at Together, says: “The 1.5% drop in house prices recorded in December suggests it’s going to be a cold January for the housing market.

“With high mortgage rates and the cost-of-living crisis crunching buyers’ budgets, many buyers are putting property plans on ice for the foreseeable future to prioritise other household expenses.

“Mortgage rates have cooled from their peak last October but remain higher than a lot of buyers can realistically afford in the tougher economic climate.

“As we face a new winter of discontent, we need specialist lenders now more than ever before. It is only this sector which can offer the flexible criteria individuals need to make their dreams of home ownership a reality and pave the way for a new spring in the housing market.”

Consumers are unsettled.”

Gareth Lewis, Commercial Director at MT Finance, says: “The Halifax data is another indication that consumers are unsettled, which makes them unwilling to pay over the odds for a property. At the start of 2022, purchasers would generally be prepared to pay the increased price as lack of supply was such an issue.

“However, with the inflationary pressures now being felt, buyers are less prepared or less able to stretch themselves even if they wanted to, which will inevitably put downwards pressure on house prices in the new year.”

As it becomes harder and more expensive to buy, demand for rental properties continues to grow.”

Avinav Nigam, Co-founder of real estate investment platform, IMMO, says: “Buying property is more expensive due to higher rates. The stress tests applied by banks are also more stringent.

“The result is that many who had hoped to purchase using mortgage finance will no longer be able to, with a disproportionate impact on younger and poorer households.

“As it becomes harder and more expensive to buy, demand for rental properties continues to grow. At the same time, rental listings are down significantly as landlords exit the market following an increase in the cost of complying with more regulations.”