The average UK house price fell for the fourth month in a row in December, according to Halifax, with experts expecting a further slowdown amid a long recession.
Property values decreased by 1.5% in December, the lender’s monthly index revealed, after a 2.4% drop in November, a 0.4% decrease in October and a 0.1% dip in September.
The annual rate of house price growth more than halved, to 2% in December, from 4.6% in November. That marked the lowest annual growth rate recorded since October 2019, when a 1.1% increase was recorded.
The UK housing market has been through a volatile period in recent months. The Bank of England has raised interest rates nine times in the past year, and it believes that the country has already entered what could be the longest recession in 100 years. Mortgage payers forced to refinance their loans are among the worst hit by the cost of living crisis after many found their annual bills increasing by more than £3,000 a year.
Across the UK the average house price in December was £281,272, Halifax said. That was 4.3% below the record high of nearly £294,000 in August, although still above the price at the start of 2022.
Higher interest rates have also deterred housebuilders from embarking on new projects, according to data published on Friday that shows the construction sector contracted in December.
Orders for new homes slumped while plans for civil engineering projects and commercial office building were also put on hold, according to the latest S&P Global/CIPS construction purchasing managers index, which fell from 50.4 in November to 48.8 in December. A figure below 50 indicates activity in the sector shrank.
Martin Beck, the chief economic adviser to the EY Item Club, said: “With a slowdown in the housing market and an expected outright [annual] fall in house prices, it’s likely the appetite for new home construction has deteriorated.”
The difficulties for housesellers in 2022 were compounded by the UK government, whose disastrous “mini-budget” under then prime minister Liz Truss and her chancellor Kwasi Kwarteng in September triggered a surge in mortgage rates.
A policy reversal by their successors eventually restored some calm to the market, and lenders this week responded to falling demand for mortgages by cutting mortgage rates. TSB will cut rates on five-year fixed rate mortgages for buyers by up to a percentage point from Monday. The rate for a five-year fixed rate mortgage when borrowing 85% of the property value will fall to 5.49%.
Nationwide, the UK’s largest building society, will cut up to 0.6 percentage points from its mortgage rates on Friday. The rate for a five-year fixed rate mortgage when borrowing 85% of the property value dropped to 4.84%.
Andrew Wishart, senior property economist at Capital Economics, a consultancy, said the Halifax price data suggested that “the house price correction is further advanced than we previously thought”.
“The idea that the housing market can have a ‘soft landing’ looks increasingly like wishful thinking,” he said. “Instead, 2023 is likely to be a year of difficult adjustment to the higher interest rate environment.”
Kim Kinnaird of Halifax Mortgages said: “As we’ve seen over the past few months, uncertainties about the extent to which cost of living increases will impact household bills, alongside rising interest rates, is leading to an overall slowing of the market.”
During the first six months of 2022 house prices grew rapidly, before levelling off in the summer and dropping from September onwards.
Halifax, which is part of Lloyds Banking Group, the UK’s biggest high street bank, last month predicted house prices will fall around 8% over the course of 2023.
Kinnaird said: “It’s important to recognise that a drop of 8% would mean the cost of the average property returning to April 2021 prices, which still remains significantly above pre-pandemic levels.”