UK house prices have fallen -1.1% in the last year, bringing the average house price to £264,500. So where’s faring worst, and is anywhere escaping the price falls so far? Let’s find out what’s happening with house prices in December 2023.
The average UK house price is now £264,500. That’s £2,990 lower than a year ago and £100 lower than last month.
However, the rate of house price falls has moderated across all regions and countries of the UK. Buyers and sellers are becoming more aligned on pricing, reducing the downward pressure on values.
Our UK House Price Index has recorded a slower pace of annual price decline at -1.1% in the last year (versus +7.2% a year ago). Prices fell -1.1% in the year to November 2023, -1.4% in the year to October and -1.2% in the year to September.
Where are UK house prices falling in December 2023?
Regions
Homeowners in Southern England are seeing the biggest fall in house prices. The East of England (-2.7%), the South East (-2.4%) and the South West (-2.2%) are the worst hit, as higher mortgage rates reduce demand the most in more expensive regions.
On the other hand, property prices are now +2.1% and +1.3% higher than a year ago in Northern Ireland and Scotland respectively.
Lower average house prices here means many people can still afford to buy a home with a higher mortgage interest rate. This keeps the housing market moving and gives less need for sellers to reduce their prices.
Cities
Cities in the South of England are seeing the biggest house price falls, with Southampton (-2.8%) hit harder than any other UK city.
Fellow south coast cities Portsmouth (-2.4%) and Bournemouth (-2.1%) are among the larger price falls, along with Cambridge (-2.6%) in the East, Leicester (-2.0%) in the East Midlands and Bristol (-1.9%) in the South West.
These Southern cities enjoyed strong buyer demand and significant price growth during the pandemic. But now demand is falling and supply is growing, there is downward pressure on local property prices.
On the other hand, house prices are still rising slowly in more affordable cities in Scotland, Northern Ireland and the North of England. This includes Belfast (+3.2%), Glasgow (+1.3%), Edinburgh (+0.9%) and Newcastle (+0.5%).
Local authority areas
Parts of Kent and Norfolk are seeing the biggest house price falls in the country. Many of these popular areas saw prices rise sharply during the pandemic due to strong demand in the ‘race for space’ or lifestyle influences.
But now they’re seeing demand fall and supply grow due to higher mortgage rates, putting the negotiating power in buyers’ hands.
| Local authority area and county | Annual house price change (%) | Annual house price change (£) | Average house price |
|---|---|---|---|
| Dover, Kent | -4.5% | -£13,960 | £297,900 |
| Canterbury, Kent | -4.5% | -£15,790 | £343,800 |
| Thanet, Kent | -4.3% | -£13,180 | £293,300 |
| Broadland, Norfolk | -4.1% | -£13,460 | £318,000 |
| North Norfolk, Norfolk | -4.1% | -£13,230 | £313,100 |
| South Norfolk, Norfolk | -4.1% | -£13,640 | £322,600 |
| Breckland, Norfolk | -4.0% | -£11,510 | £273,300 |
| Great Yarmouth, Norfolk | -4.0% | -£8,060 | £193,200 |
| Norwich, Norfolk | -4.0% | -£9,480 | £226,200 |
| Waveney, Suffolk | -4.0% | -£10,120 | £241,900 |
Zoopla House Price Index, December 2023
Why are UK house prices falling?
Higher interest rates on mortgages have made it harder for people to buy a home, which reduces demand for property. At the same time, there are many more homes on the market than in recent years.
These factors together create a buyers’ market – when buyers have more choice so sellers are under pressure to price more competitively in order to sell.
However, the market is in a much better condition than this time last year, when the fall-out from the mini budget was still fresh. Buyer demand is up +19% on a year ago which is helping +17% more new sales agreed. There is also an increase in available supply, up a quarter on last year, which is boosting choice and supporting sales.
Why haven’t house prices fallen further in 2023?
History suggests that mortgage rates rising from 2% to 5%+ would have led to larger house price falls than those we’ve recorded in 2023.
But there are several reasons to explain the more modest falls.
The strength of the labour market and high growth in average earnings are important factors.
Lenders’ forbearance policies are supporting households struggling with repayments, which has limited the number of forced sellers.
Perhaps most important is the tougher mortgage affordability testing for new borrowers since 2015. New regulations were designed to stop households taking on excessive debt and artificially inflating house prices.
This has prevented a major housing overvaluation and made sure that most households can manage the transition to higher mortgage rates.
While mortgage rates dropped as low as 1.3% in late 2021, new mortgage borrowers had to prove they could afford a 6% to 7% rate. At the same time, banks were only allowed to lend 15% of new customers more than 4.5 times a salary.
These regulations mean mortgage borrowers must have a higher income and put down a larger deposit. The higher the house prices, the more they need.
The chart shows the rate at which lenders have stress-tested over the last 10 years versus the mortgage rate borrowers have paid.
Will house prices keep falling in 2024?
Yes, our data suggests that house prices will keep falling slowly next year.
After three years of strong price growth up until 2022, higher mortgage rates are resetting the price people can afford to buy at.
Despite a modest decline in house prices over 2023, UK housing still looks 10-15% overvalued at the end of the year. We expect this position to improve during 2024 as incomes rise and house prices drift 2% lower. Sales volumes are expected to hold steady at 1 million sales completions over 2024.
Lenders are stress-testing new borrowers at close to 9%, despite actual mortgage rates starting to fall. This regulatory constraint on buying power is one reason we believe house prices are unlikely to rise in 2024 even if the Bank Rate starts to fall later in the year.
Mortgage rates need to drop further to improve affordability and encourage people to move.
How far house prices will fall hinges on the trajectory for mortgage rates and how mortgage lenders assess affordability. Some economists forecast that the Bank of England will start cutting rates around summer 2024. This would see mortgage rates falling and mean an uplift in housing market activity towards the end of next year.
Key takeaways
- House prices are falling in all property price bands and areas of England and Wales
- The biggest annual falls are in the East of England (-2.7%), the South East (-2.4%) and the South West (-2.2%)
- Southampton, Aberdeen, Cambridge and Portsmouth are worst hit in terms of UK cities
- Parts of Kent and Norfolk are seeing the largest house price falls as they feel the impact of high mortgage rates and low demand
- Northern Ireland (+2.1%) and Scotland (+1.3%) are the only UK regions where house prices are rising, while the North East has seen no annual change
- Property prices remain well above what they were before the pandemic, even in the places with the biggest house price falls