It doesn’t seem long ago when headlines were lauding the performance of the UK property market, with all-time high prices being set in late summer 2022. The latest data from Nationwide shows that as we end 2023, house prices today are almost 4.5% lower than those record-setting days. However, if there is a positive, it’s that house prices today are only 1.8% lower when compared to the same time last year.
Many homeowners and those working in the real estate sector are likely breathing a sigh of relief as 2023 draws to a close, as prices have held up surprisingly well when one considers all the economic headwinds. Admittedly, the headline inflation rate has come down; however, if one were to look at many household essentials, such as the price of food, day-to-day costs, etc., it is clear why some buyers are holding back from making large purchases.
How the UK Regions Performed in 2023
The Nationwide produces regional house price indices quarterly. Its Q4 data covers the three months to December and revealed a price fall in all but two UK regions. The best-performing region in 2023 was Northern Ireland, with house prices rising by 4.5% over the year, and prices in Scotland were also up by a modest 0.5%, while Wales experienced a 1.9% decline.
Across England, the overall trend was negative, with prices down by 2.9% when compared to Q4 2022. The weakest performing region in England was East Anglia, with a year-on-year decline of 5.2%. Southern England, which includes London and Outer Metropolitan, the South West, East Anglia and the Outer South East, experienced a fall in prices of 3.4% year on year. Of the southern regions, it was London that fared best with a 2.4% annual decline.
In Northern England, which comprises the East and West Midlands, the North, North West, and Yorkshire & The Humber prices were down 1.8% year on year, and of the aforementioned regions, the best performer was Yorkshire & The Humber, which experienced a modest decline of 0.5%.
Robert Gardner, Nationwide’s Chief Economist, describes the housing market activity as weak throughout 2023, evidenced by the number of transactions, which have been around 10% lower over the past six months compared to pre-pandemic levels.
Further impacting the housing market’s performance has been the higher borrowing costs, which have seen transaction levels down by around 1/5th for those purchasing with a mortgage.
“Although prices are modestly lower and incomes have risen, 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%.
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%.”
Although buyers requiring a mortgage to purchase a property are likely to find the current climate challenging, the uncertainty in the market has provided opportunities for some, and this can be seen in the volume of cash transactions, which are continuing to run at above pre-COVID levels.
What to Expect from the Property Market in 2024?
Many will be hoping for better times in 2024, and Robert Gardner does see some encouraging signs for buyers. With mortgage rates edging down, he sees more optimism among investors, with many feeling that the Bank of England has raised rates far enough to return inflation to target and will reduce rates in the years ahead.
For those hoping for a notable increase in activity and a rapid rise in prices in 2024, Robert feels that this is unlikely due to surveyors reporting subdued levels of new buyer enquiries and weak consumer confidence.
Over time, Robert feels that the slightly lower house prices and mortgage rates will help with affordability. He expects market activity to remain subdued, and if the UK economy remains sluggish, which is likely, house prices are likely to remain broadly flat over the course of 2024.