Over the past year, UK house prices have experienced a decline of -0.8%, resulting in an average house price of £264,400. In January 2024, specific regions, cities, and local authority areas are witnessing the most significant decreases in house prices.
The House Price Index, reflecting fluctuations in house prices throughout the UK, indicates a decrease of -0.8% compared to a year ago. The current average UK house price stands at £264,400, marking a decrease of -£2,100 from the previous year and no change from the previous month.
Nevertheless, the descent in house prices has decelerated nationally, attributed to a surge in the number of agreed-upon sales during the initial weeks of 2024. A notable trend is the growing alignment between buyers and sellers on pricing, alleviating the downward pressure on sale prices. This alignment is exemplified by the annual drop of -0.8% in December 2023, in contrast to the steeper declines of -1.1%, -1.4%, and -1.2% recorded in the three preceding months.
In January 2024, where are the declining areas for house prices in the UK?
The most significant decline in house prices is observed among homeowners in Southern England. The East of England (-2.5%), the South West (-(2.2%), and the South East (-1.9%) are the most adversely affected, primarily due to increased mortgage rates, leading to a pronounced reduction in demand in more affluent regions. It’s noteworthy, however, that these declines are either on par or smaller compared to the previous month.
Conversely, property values in Northern Ireland and Scotland have shown positive trends, now registering increases of +3.1% and +1.8%, respectively, compared to a year ago. These gains surpass the previous month’s figures of +2.1% and +1.3% in these regions. In areas with lower average house prices, such as Northern Ireland and Scotland, prospective buyers can still manage to purchase homes despite higher mortgage interest rates, sustaining market activity and fostering gradual increases in house prices.
Cities in the Southern part of England, notably Aberdeen (-2.9%), where the housing market is closely tied to the local economy and oil industry, are experiencing substantial declines in house prices. Southampton (-2.7%) and Portsmouth (-2.4%), both situated on the South Coast, have witnessed the most significant drops in house prices in England during the year leading up to January 2024.
These declines are followed by Cambridge (-2.6%) in the East, Bournemouth (-1.9%) on the South Coast, Leicester (-2.0%) in the East Midlands, and Bristol (-1.9%) in the South West. Despite these Southern cities enjoying robust buyer demand and substantial price growth during the pandemic, they are now facing downward pressure on local property prices due to decreased demand and increased supply.
Conversely, house prices continue to rise gradually in more affordable cities in Scotland, Northern Ireland, and the North of England. This includes Belfast (+3.2%), Glasgow (+1.3%), Edinburgh (+0.9%), Liverpool (+0.9%), and Leeds (+0.6%).
Local Authority Areas
Parts of Kent, Essex, and Norfolk are witnessing the most substantial declines in house prices across the country. These sought-after areas experienced a sharp surge in prices during the pandemic, driven by strong demand in the ‘race for space’ or lifestyle influences. However, they are now experiencing a decline in demand as supply increases due to higher mortgage rates, exerting downward pressure on house prices.
What is causing the decline in UK house prices?
Increased interest rates on mortgages are presenting challenges for prospective homebuyers, diminishing the demand for properties. Simultaneously, there is a notable surge in the number of homes available on the market compared to recent years.
These combined factors have led to the emergence of a buyers’ market, wherein buyers enjoy a greater array of choices, compelling sellers to adopt more competitive pricing strategies to facilitate sales.
Although there is a 12% rise in buyer demand compared to a year ago, it still lags behind the 5-year average by 13%. Despite several positive indicators in the housing market compared to the previous year, when the UK initially experienced the impact of heightened mortgage rates, it is crucial to temper enthusiasm. Agreed sales have increased by 13%, new listings by 14%, and the overall inventory by 22%.
Nevertheless, it is essential not to exaggerate these improvements. The market still favors buyers, with people remaining highly price-sensitive and emphasizing value due to the prevailing high mortgage rates.
Are House Prices Expected to Decline in 2024?
Certainly, our data indicates a continued gradual decline in house prices throughout 2024.
Following a robust three-year period of price escalation until 2022, the impact of elevated mortgage rates is reshaping the affordability landscape for potential buyers.
Despite a modest dip in house prices observed in 2023, the UK housing market still appears to be overvalued by approximately 10-15% by the year’s end. Anticipated improvements in this scenario during 2024 are linked to rising incomes and a projected 2% decrease in house prices. Sales volumes are forecasted to remain stable with around 1 million completed sales throughout the year.
Lenders are subjecting new borrowers to stress tests at rates exceeding 8%, despite the fact that actual mortgage rates are on the decline. This regulatory limitation on purchasing power contributes to our expectation that house prices will not experience an upturn in 2024, even if the Bank Rate decreases later in the year.
For a positive shift, mortgage rates need to decrease further to enhance affordability and stimulate housing market mobility.
The extent of the decline in house prices hinges on the trajectory of mortgage rates and how lenders evaluate affordability.
Some economists predict that the Bank of England will commence rate cuts around the summer of 2024. Should this occur, a corresponding drop in mortgage rates could lead to increased activity in the housing market towards the end of the same year.
Why didn’t housing prices experience more significant declines in 2023?
Historical trends would have suggested that the increase in mortgage rates from 2% to 5% and beyond should have resulted in more substantial drops in house prices compared to what was observed in 2023.
However, several factors can account for the relatively modest declines. The robustness of the labor market and substantial growth in average earnings play crucial roles. Lenders’ forbearance policies have provided support to households facing repayment challenges, thereby limiting the number of forced property sales.
Of particular significance is the stringent mortgage affordability testing introduced for new borrowers in 2015. These regulations were implemented to prevent households from taking on excessive debt and artificially inflating property values.
As a result, there has been prevention of significant housing overvaluation, ensuring that most households can navigate the transition to higher mortgage rates. It is worth noting that a considerable portion of homeowners is yet to undergo this transition.