And what will happen to prices this year?
UK house prices concluded 2023 with a 1.8% decline compared to the previous year, marking a nearly 4.5% drop from the peak recorded in late summer 2022, according to Nationwide Building Society.
The mortgage lender said the average price of a home in the UK was £257,443 in December 2023, with prices remaining flat compared with November.
Robert Gardner, chief economist at Nationwide Building Society, said the housing market displayed weakness throughout 2023, with total transactions running approximately 10% below pre-pandemic levels in the past six months and mortgage-related transactions experiencing an even steeper drop, around 20%, reflecting the impact of elevated borrowing costs. In contrast, cash transactions continued to surpass pre-pandemic levels.
“Even though house prices are modestly lower and incomes have been rising strongly, 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,” Gardner stated, commenting on the latest Nationwide House Price Index.
“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%.
“At the same time, deposit requirements remain prohibitively high for many of those wanting to buy – a 20% deposit on a typical first-time buyer home equates to around 105% 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%.”
Gardner added that recent indicators suggest slight relief for potential buyers, as mortgage rates have edged down and investors have become optimistic that the Bank of England’s rate hikes have curbed inflation, leading to expectations of future rate reductions.
“Nevertheless, a rapid rebound in activity or house prices in 2024 appears unlikely,” he pointed out. “While cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, consumer confidence remains weak and surveyors continue to report subdued levels of new buyer enquiries. Moreover, while markets are projecting that the next bank rate move will be down, there are still upward risks to interest rates. Inflation is declining, but measures of domestic price pressures remain far too high.
“It appears likely that a combination of solid income growth, together with modestly lower house prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim.
“If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline or remain broadly flat, perhaps 0 to -2%, over the course of 2024.”
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