Average UK house prices fell by more than £4,100 in one month as the rising cost of living and higher interest rates hit.
UK house prices fell for the fourth consecutive month, with property values decreasing by 1.5% in December, following a 2.4% drop in November, a 0.4% decrease in October and a 0.1% dip in September, according to Halifax.
Annual growth slowed across all nations and regions during December, pulling the price of the average UK property down to £281,272.
The annual rate of house price growth more than halved, to 2% in December, from 4.6% in November, Halifax said.
“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,” Kim Kinnaird, director of Halifax Mortgages, said.
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Mortgage rates, which reflect expectations of medium-term borrowing costs, have surged in the past few months, following a series of interest rate rises by the Bank of England (BoE) in an attempt to tame high inflation.
The BoE warned homeowners are facing an average £3,000 rise in mortgage payments this year.
“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,” Kinnaird said.
“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,” she added.
The latest survey sees the Halifax House Price Index hit its 40-year anniversary, with house prices up 974% since it began in early 1983.
Avg House Prices fall -1.5% in Dec 22 to £281,272 with growth receding to 2.0%. Prices may be retreating but as @HalifaxBank HPI celebrates 40ys in the business, overall house prices are up 974% since early 1983 pic.twitter.com/Eem4H0Admd
— Emma Fildes (@emmafildes) January 6, 2023
Regionally, London was the most expensive place to buy a home in early 1983, as it is today. Properties in the capital have risen from an average £36,056 in early 1983 to £541,239 today.
Yorkshire and the Humber was the cheapest place to buy a property when the Index began, at £20,332 compared to £205,466 now.
In the North East, average properties are £169,980 today, up from £21,494 in the first quarter of 1983.
In Scotland, the average price of a property in the first quarter of 1983 was £26,411 compared to £200,166 today.
In Wales, the average home now costs £217,547, compared to £21,388 forty years ago.
While in Northern Ireland, average prices have risen from £23,383 in the first quarter of 1983 to £183,825 today.
“All nations and regions suffered an annual growth rate slowdown in the final month of 2022. The average UK property price now stands at £281,272 down from £285,425 last month with Halifax forecasting an 8% drop in house prices over the year,” Victoria Scholar, head of investment at Interactive Investor, said.
But even as house prices are expected to continue to "soften", the shortage of properties on the market will prevent a deeper fall, Scholar warned.
“Although house prices remain historically elevated, 11% higher than at the start of 2021, as the UK heads towards a recession, house prices are expected to soften further. The housing market looks set to struggle under the weight of a rising mortgage rates and broader inflationary pressures such as the high cost of energy and food which are squeezing the consumer and weighing on housing demand,” she said.
“Many individuals and households are holding off from purchasing properties on the back of slimmed down budgets and in the hope that mortgage rates and property prices become more affordable down the line. Offsetting an even steeper slide in the UK property market is the chronic shortage of houses and the macroeconomic backdrop of build cost inflation.”
Alice Haine, personal finance analyst at investment platform Bestinvest, said: “While the high mortgage rates seen in October have now eased and property prices are on the decline… affordability is still a challenge for many as prices are still above pre-pandemic levels and household finances continue to grapple with the wider cost of living crisis.”