UK house prices flat after four-month fall as interest rates bite

UK house prices were roughly flat in January, having fallen in the previous four months, according to Halifax.

Average prices were stable at £281,684 last month, the lender said, after sharp falls of 1.3% in December and 2.4% in November.

However, the pace of annual growth in house prices slowed to 1.9% from 2.1% in December, marking the lowest rate since October 2019, as higher mortgage rates and the wider cost of living crisis have dampened demand. The average house price is about £12,500, or 4.2%, below its peak in August, although it remains about £5,000 higher than a year ago.

Related: Why UK house prices could plunge by 20% after the latest interest rate hike

The housing market has slowed across all nations and regions and is expected to slow further this year, and many forecasters expect price falls of up to 20%. Halifax predicts a drop of 8% this year.

“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,” the director of Halifax Mortgages, Kim Kinnaird, said. “As we move through 2023, that trend is likely to continue as higher borrowing costs lead to reduced demand.”

She said that lower prices could make it more affordable for people to get on the housing ladder as the year went on.

“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.”

Soaring inflation prompted the Bank of England to raise interest rates to 4% last week, the 10th rise in a row, piling more pressure on mortgage holders and businesses struggling to pay off their loans. The Bank said inflation “is likely to have peaked” and a recession would be less severe than previously predicted, but added that Brexit was damaging the economy faster than it had anticipated.

Jeremy Leaf, a north London estate agent, said: “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 dependent 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.”

The regional breakdown from Halifax showed that Wales recorded a significant slowdown to 2% in annual house price gains, from 6% in December, taking the average price to £210,275. In the south-west, price growth has also fallen back, to 2.7% from 6%, with an average property value of £298,853 – dipping below £300,000 for the first time since last March.

In Northern Ireland and Scotland, the slowdown was less pronounced. In Northern Ireland, the growth rate eased to 6.9% from 7.1% and people pay an average of £183,935, while in Scotland, average properties cost £197,784, as the growth rate fell to 2.4% from 3.3%.

In London, annual house price inflation was flat after a 2.9% gain in December, with the average house price at £530,396. The price of a typical London home is about £250,000 above the UK national average.