UK house prices fall at fastest pace in more than a decade

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UK house prices fell at the fastest pace in more than a decade in November, driven by a sharp decline in London, according to official data that reflects the impact of high interest rates on the property market.

Average prices contracted 2.1 per cent in the year to November 2023, compared with a 1.3 per cent fall in the 12 months to October and the largest annual drop since June 2011, the Office for National Statistics said on Wednesday. 

House prices were down 0.8 per cent between October and November, taking the average property to £285,000, some £6,000 lower than in November 2022.

London was the worst-performing UK region, registering a 6 per cent annual contraction, the biggest since 2009. But the capital remained the most expensive part of the country, with the average home costing £505,000.

The fall in prices reflects the effect of elevated mortgage rates on the housing market after the Bank of England raised interest rates from a record low of 0.1 per cent in November 2021 to a 15-year high of 5.25 per cent in a bid to tame high inflation.

Jeremy Leaf, an estate agent in London and a former residential chair of the Royal Institution of Chartered Surveyors (Rics), said the ONS data was the most comprehensive of all surveys because it includes cash and mortgage transactions, but that it reflected market activity of at least a few months ago.

“At that time, buyers and sellers were reacting to uncertain economic times before inflation and mortgage rates had started to stabilise and fall,” he said. “On the ground, the situation is different now with early signs of an improvement in confidence, translating into more viewings and offers.”

This month, mortgage providers reduced rates on a range of products on the back of expectations the BoE would start cutting interest rates sharply this year. This boosted mortgage approvals and led to a rise in the house price indices of Halifax and Nationwide.

According to data released on Thursday by Rics, most UK estate agents in December expected an expansion in sales in the year ahead, marking the second consecutive month of positive sentiment on that measure.

The figures from the professional body also showed the least negative assessment of house prices since November 2022.

Tarrant Parsons, Rics economist, said: “Supported by an easing in mortgage interest rates of late, buyer demand has now stabilised, and this is expected to translate into a slight recovery in residential sales volumes over the coming months.”

However, the Rics data was collected before the unexpected rise in UK inflation to 4 per cent in December, which led traders to scale back expectations for BoE interest rate cuts this year.

The rise in inflation “could mean we get a pause in the [mortgage rate] cuts, and there’s a chance some of the better deals could go sooner rather than later”, said Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown.

Gabriella Dickens, economist at the consultancy Pantheon Macroeconomics, said that because the ONS measure lagged data from Nationwide — which reported a peak annual drop of 5.3 per cent in September — “it is unlikely that November will mark the nadir in the official measure”.

“We continue to expect a 5 per cent peak-to-trough fall in the official measure of house prices, with the trough materialising at the end of quarter one [2024],” she said.

The ONS house price index covers deals finalised in November that might have been agreed several months before whereas Halifax and Nationwide report on house prices for deals agreed on that month.

The statistics agency said house prices fell in England but rose in Scotland and Northern Ireland in the year to November. Of all property types, terraced houses registered the largest annual fall in prices of 3.8 per cent.

In separate figures released on Wednesday, the ONS said UK rental prices rose 6.2 per cent in the 12 months to December 2023. The reading was unchanged from November and the joint highest annual percentage change since data collection began in January 2016.

Experts said a shortage of supply was driving rental prices, together with high interest rates and increased tenancy demand as buying became harder.

Tom Bill, head of UK residential research at estate agency Knight Frank, said: “Low supply continues to cause financial pain for tenants as it keeps strong upwards pressure on rents.”

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