UK house prices rise on shortages in 2023

Cost of the average home increased by 1.7% over the past year, but the latest Halifax survey shows major regional disparity

Homes in London. Overall, UK house prices rose by 1.7 per cent in 2023 but there were sharper falls in London and the south-east, according to the Halifax index. EPA

House prices in Britain increased by 1.7 per cent in 2023, with the cost of the average property now £4,800 more than it was in December 2022, according to the Halifax.

On a monthly basis, the cost of the average home in December rose for the third month in a row to £287,105 – £3,066 or 1.1 per cent higher than in November – to hit their highest level since March last year.

“While it’s encouraging that we saw growth in the last three months of the year, this was preceded with property price falls for six consecutive months between April and September,” said Kim Kinnaird, director at Halifax Mortgages.

“The growth we have seen is likely being driven by a shortage of properties on the market, rather than the strength of buyer demand.

“That said, with mortgage rates continuing to ease, we may see an increase in confidence from buyers over the coming months.”

The Halifax House Price Index showed considerable regional disparity within the UK.

Northern Ireland showed the strongest growth in 2023, with the average property price increasing by 4.1 per cent to £192,153. In Scotland, the average home rose by 2.6 per cent in value to £205,170.

But prices in the south-east fell more steeply, with the average house price dropping by 4.5 per cent, or £17,755, in 2023 to £376,804.

'Naturally cautious'

Over the course 2024, the Halifax index predicted house prices could fall by 2 per cent to 4 per cent, but pointed out that the economic conditions in the UK created increased uncertainty around house price forecasts.

“As we move through 2024, the UK property market will continue to reflect the wider economic uncertainty and buyers and sellers are likely to be naturally cautious when considering making a move,” Ms Kinnaird said.

“While wage growth is now above inflation, helping to ease cost of living pressures for some and improving housing affordability, interest rates are likely to remain elevated for as long as inflation remains markedly above the Bank of England’s target.”

Analysts agreed economic uncertainty will play a crucial role in the direction of the property market in 2024.

“There have been some positive signs over the last week which indicate that the housing market is starting to make a slight recovery,” said Kate Steere, housing expert at personal finance comparison site Finder.

“Yet, while the prospect of a UK recession remains on a knife edge, it’s too soon to say that we’re out of the woods.”

Mortgage approvals

The Halifax figures came after the Bank of England reported mortgage approvals in the UK rose by more than expected in November.

Banks and building societies gave the green light to 50,067 home loans, compared with 47,888 in October, the Bank of England's data showed. This was the highest recording since June.

Economists had predicted an increase to 48,800.

Mortgage rates have been falling in recent months as analysts speculate that at 5.25 per cent, interest rates have peaked. There are also predictions that the Bank of England could begin lowering rates as early as May.

The average cost of a two-year fixed mortgage fell on Thursday to 5.9 per cent, according to data provider Moneyfacts, significantly below the August rate of 6.85 per cent, a 15-year high.

“With new mortgage approvals on the rise and signs that borrowing conditions are set to improve over the course of 2024, mortgage lending may start to creep up over the next few months as more buyers return to the market,” said Alice Haine, a personal finance analyst at Bestinvest.

“How rapidly this happens will depend on how soon and how quickly the BoE cuts interest rates. Any drop from the current 15-year high of 5.25 per cent will deliver a welcome boost for first-home buyers and borrowers needing to refinance.”