Halifax House Price Index: Property Market Remains Largely Impervious to Any Notable Decline in House Prices

The start of 2023 has brought some stability to UK house prices, with the average house price remaining largely unchanged in January at £281,684, a very small decrease on December.

This followed a series of significant monthly falls at the end of last year (-1.3% in December and -2.4% in November).

The pace of annual growth has continued to slow, to +1.9% (from +2.1% in December), which is the lowest level recorded over the last three years.

The average house price is now around £12,500 (-4.2%) below its peak in August last year, though it still remains some £5,000 higher than in January 2022 (£276,483).

We expected that the squeeze on household incomes from the rising cost of living and higher interest rates would lead to a slower housing market, particularly compared to the rapid growth of recent years, said Kim Kinnaird, Director, Halifax Mortgages.

As we move through 2023, that trend is likely to continue as higher borrowing costs lead to reduced demand.

For those looking to get on or up the housing ladder, confidence may improve beyond the near-term.

Lower house prices and the potential for interest rates to peak below the level being anticipated last year should lead to an improvement in home buying affordability over time.

Nations and regions house prices

The slowdown in annual house price inflation is reflected in most nations and regions across the UK.

Wales, which recorded some of the strongest annual house price inflation over the last few years, saw its rate of growth fall to +2.0% (from +6.0% in December) with an average house price of £210,275 (down from a peak of £224,210 in August).

The South West of England has also seen annual house price growth slow considerably, now at +2.7% (vs +6.0% in December) with an average house price of £298,853 (dipping below £300,000 for the first time since March last year).

In Northern Ireland and Scotland the pace of annual growth eased more slowly.

Those buying a home in Northern Ireland will now pay an average of £183,935 (growth rate of +6.9% vs +7.1% in December), while in Scotland average properties now cost £197,784 (growth rate of +2.4% vs +3.3% in December).

London, which for some time has lagged many other areas of the UK in terms of house price growth, saw the cost of buying an average home fall from £541,472 to £530,396 in January, with annual house price inflation flat (0.0%) compared to +2.9% in December.

The price of a typical London home is still around a quarter of a million pounds above the UK national average.

Housing activity

HMRC monthly property transaction data shows UK home sales decreased in December 2022.

UK seasonally adjusted (SA) residential transactions in December 2022 were 101,920 – down by 2.6% from November’s figure of 104,610 (down 2.6% on a non-SA basis).

Quarterly SA transactions (October-December 2022) were approximately 0.1% higher than the preceding three months (July 2022 – September 2022).

Year-on-year SA transactions were 1.4% higher than December 2021 (1.1% lower on a non-SA basis). (Source: HMRC)

Latest Bank of England figures show the number of mortgages approved to finance house purchases decreased in December 2022, by 23% to 35,612.

Year-on-year the December figure was 51% below December 2021. (Source: Bank of England, seasonally-adjusted figures)

The December 2022 RICS Residential Market Survey results show further weakening in the sales market activity.

The reading for new buyer enquiries came in at a net balance of -39%, marginally down from -38% previously.

Agreed sales had a net balance of -41% (-36% previously) and new instructions returned a net balance of -23% (previously -10%) – the weakest since September 2021. (Source: Royal Institution of Chartered Surveyors’ (RICS) monthly report)

Tom Bill, head of UK residential research at Knight Frank, comments:

“The poor performance of the UK housing market in the chaotic final months of last year is not a useful barometer for 2023.

Activity has been strong in the first five weeks of this year as buyers and sellers reactivate plans and come to terms with the fact that fixed-rate mortgages are now in line with their long-run average.

Some discretionary demand has disappeared but most buyers need to move and have accepted the fact that a 13-year period of ultra-low rates is over.

As budgets adjust to higher rates, we think prices will fall by 5% this year but offers are still exceeding the asking price in some areas.

Unemployment remains low and inflation appears to have peaked, so you wouldn’t rule out the housing market surprising on the upside as it did during the pandemic.”

Jeremy Leaf, north London estate agent and former RICS residential chairman, comments:

“It was inevitable that the shock of the mini-Budget at the end of September, which prompted a steep rise in mortgage rates and the inexorable increase in the cost of living, would have an impact on the housing market.

However, since the turn of the year, buyers and sellers have been slowly coming to terms with the changed environment.

Buyers are negotiating hard, especially the considerable number who are largely equity-driven or not even dependant on mortgage finance so won’t show up in these figures.

Looking forward, we are anticipating small ups and downs in prices but no major correction, particularly now more stock is beginning to become available.”

Tomer Aboody, director of property lender MT Finance, comments:

“There are signs of a little more confidence within the financial and housing markets, which has brought some stability to the latter with property prices relatively unchanged.

As the Prime Minister is pushing to halve inflation, and with Swap rates falling or at least stabilising at more affordable levels, buyers are feeling more hopeful although expectations are having to be managed due to tighter affordability.

A possible mantra for the year ahead is for buyers to stay sensible and beware of overstretching themselves.

Homes will be there to be bought but at a level which should suit the individual buyer’s affordability.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, comments:

“Annual house price growth continues to slow, as activity softens and the market gradually returns to something closer to what we were used to pre-pandemic.

There is encouraging news on the mortgage front with fixed-rate pricing continuing to edge downwards and it’s only a matter of time before it will be possible to fix for five years at less than 4 per cent.

While the days of sub-1 per cent fixes are long gone, rates are beginning to look more palatable for borrowers, which should be a welcome boost for the housing market and encourage more to take the plunge.

The markets have reacted favourably to the Prime Minister’s inflation-cutting pledge and while there may be further rate rises to come, base rate appears to be nearing its peak, which will be a comfort to borrowers.”

Avinav Nigam, cofounder of real estate investment platform, IMMO, comments:

“The slowdown in annual house-price growth was expected.

It reflects a combination of forces including reduced economic confidence, reduced affordability as a result of higher rates and stricter affordability ratios imposed by mortgage lenders, and the seasonal slowdown driven by practicalities, including fewer daylight hours for viewing properties.

As it becomes harder and more expensive to buy, demand for rental properties continues to grow.

At the same time, rental listings are down significantly (rental supply is down 38 per cent on the five-year average, according to Zoopla) as landlords exit the market following an increase in the cost of complying with more regulations.

The opportunity for professional providers of safe, quality and affordable rental housing for the UK is clear.”

Director of Benham and Reeves, Marc von Grundherr, comments:

“Given the strong economic headwinds that battered the UK following last September’s mini budget, it’s quite remarkable that the property market has remained largely impervious to any notable decline in house prices.

With that storm now weathered and confidence returning to the market, the previous monthly house prices declines seen at the back end of last year have already amounted to little more than a seasonal cough and cold.”

CEO of Alliance Fund, Iain Crawford, comments:

“The property market is yet to buckle under the pressure of wider economic uncertainty and while we’ve seen house prices start to cool in recent months, it’s important that we proceed with pragmatism.

Yes, the increasing cost of borrowing has resulted in buyers entering the fray with less gusto and the price achieved by sellers has reduced as a result.

But what we’re certainly not seeing is a mass exodus of buyer activity and an impending market collapse.”

Co-founder and CEO of GetAgent.co.uk, Colby Short comments:

“We can’t ignore the fact that the cost of borrowing has climbed, putting further strain on the nation’s homebuyers and their ability to climb the ladder.

This has naturally resulted in a reduction in the rate of house price growth but we’re also seeing a head in the sand approach from many sellers, who are entering the market with over optimistic expectations based on a price that they may have achieved six months ago.

In doing so, they are slowing the market to a far greater extent than the marginal reduction in buyer activity, as their overpriced properties stagnate with little to no interest.

The market remains robust and there is still a fair price to be had, but it is vital sellers wake up to the fact that they may need to drop a few thousand pounds in order to secure a sale.”

Managing Director of Barrows and Forrester, James Forrester, comments:

“All things considered, the property market has fared far better than many were quick to forecast and we’ve already seen the rot reverse with respect to the previous monthly reductions in property values.

This is despite the government’s best efforts to drive the wider economy into the ground whilst hiking the cost of borrowing for hard pressed homebuyers, buyers who have already had to contend with record rates of house price growth and a lack of housing delivery.

Now that the dust has settled, don’t be surprised to see the property market stabilise following this period of adjustment and positive house price growth to return over the coming months.”

Jason Ferrando, CEO of easyMoney, comments:

“Despite last week’s further hike to interest rates, we’re simply not seeing the same level of market volatility that came during the latter stages of last year, particularly within the lending space.

So while buyers may be treading with a greater degree of caution, the vast majority are continuing to stride forward with intent.

This consistent level of activity will ensure that the market remains in good health, albeit having seen marginal correction to property values.”