For the fourth consecutive month, UK property prices have fallen, and annual house price growth was down to 2.8% in December. The latest Nationwide House Price Index shows that every region recorded a slowdown in price growth in the year’s final quarter.

Twenty-twenty-two has been far from a stellar year for the people of the United Kingdom. The loss of its much-loved monarch, political turmoil, rising interest rates, inflation and pressures from the overall rise in living costs have all made it one that many would rather forget.

Finding glints of light in what some consider gloomy times is far from easy, even more, challenging if you are a UK homeowner. However, if there is a positive to be drawn from Nationwide’s latest housing market update, it is that prices only fell 0.1% month-on-month, less than in previous months.

Another ray of hope is that since mid-2020, UK property prices have risen dramatically, thanks to cheaper borrowing costs, far in excess of the recent pullback. There would need to be a double-digit fall before they get back to pre-pandemic levels. However, this could still happen if some economists’ predictions for 2023 are correct.

Robert Gardner, Nationwide’s Chief Economist, said, “December saw a further sharp slowdown in annual house price growth to 2.8%, from 4.4% in November. Prices fell by 0.1% month-on-month – a much smaller decline than in the previous couple of months. However, December also marked the fourth consecutive monthly price fall – the worst run since 2008, which left prices 2.5% lower than their August peak (after taking account of seasonal effects).”

How the regions are faring
In Nationwide’s news release, Mr Gardner stated that the strongest-performing UK region in the last quarter was the South West; however, since then, annual house price growth in the region has slowed from 12.5% to 4.3%. Of all the areas, the best-performing market in the UK was East Anglia, whose average house prices increased by 6.6%.

The weakest-performing region was Scotland, with an annual growth of 3.3%. It was a similar picture in Wales, whose annual growth fell from 12.1% in Q3 to 4.5% in Q4, and in Northern Ireland, which saw prices increase by 5.5% in 2022, vastly lower than the stellar 12.1% rise it experienced in 2021.

Of the English regions, London was the weakest performer. However, the fall has been comparatively mild, with annual house price growth slowing from 6.7% in Q3 to 4.1% in Q4. The South East regions and Outer Metropolitan areas have seen very little change in annual house price growth when compared to the previous year, with prices increasing by 4.2% and 4.3%, respectively.

On the subject of whether the UK property market would be able to achieve a soft landing in 2023, Mr Gardner highlighted that the major factor of whether it can be achieved is if forced selling can be avoided. If this happens, house prices will continue to fall. He also pointed out that around 85% of mortgage balances are on a fixed interest rate, meaning that household balance sheets will remain in good shape and protected from higher borrowing costs, at least for a time.

UK Fact File (Q4 2022)

  • Quarterly average UK house price: £265,195
  • Annual percentage change: 4.8%
  • Quarterly change (seasonally adjusted): -1.8%
  • Most expensive region: London
  • Least expensive region: North
  • Strongest annual price change: East Anglia
  • Weakest annual price change: Scotland

Where does the market go from here?
The performance of the UK property market has wide-ranging effects on the UK economy. When house prices increase, homeowners feel more confident and are more likely to spend. However, it is the opposite when prices fall. In addition, with approximately half of UK homeowners having a mortgage, the recent interest rate rises by the Bank of England are likely not to have increased positivity.

Trying to predict what 2023 holds for the UK property market is difficult. There are so many factors that could change its direction drastically. My biggest concern is the potential for a change in the global economic landscape, which will have a negative impact on the west and, of course, the United Kingdom.

Some well-known economists are predicting a difficult time for the US economy in 2023 and 2024, with significant shocks to its investment and property markets. Given the close relationship between the USA and UK, should this become a reality, it’s hard to see this not negatively impacting the British economy.

Up or down in 2023?
Earlier this week, I was sent an opinion piece from a chairman of a tax group stating UK property prices would increase in 2023 by 5-8%, and I must admit that I was taken aback, given recent data and the potential economic outlook.

If I were asked to offer an opinion on the direction of UK property prices, my best-case scenario would be a nominal drop of 5%, and my worst-case scenario sees prices falling by 15% in 2023, which will bring them to around pre-pandemic levels.

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