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House prices have suffered their biggest drop since 2008 this year after a sharp rise in borrowing costs deterred buyers.
The average price this month was £257,443, around 1.8 per cent less than a year ago, according to figures from lender Nationwide.
This means prices are 4.5 per cent below their all-time high in summer 2022, and building society experts said a “rapid recovery” is unlikely in 2024.
Robert Gardner, chief economist at Nationwide, said: “Housing market activity was weak throughout 2023.”
The number of mortgage-related transactions fell by around a fifth compared to pre-Covid levels, “reflecting the impact of higher borrowing costs”, it added.
House prices have suffered their biggest drop since 2008 this year after a sharp rise in borrowing costs deterred buyers.
Hopes are growing that, now that inflation is falling, the Bank of England could start cutting rates from next spring, after keeping its benchmark interest rate at 5.25 percent last month.
However, with borrowing costs only falling “moderately” and the economy still sluggish, house prices could fall another 2 percent next year, Gardner warned.
He added: “A rapid rebound in activity or house prices in 2024 appears unlikely.”
“While cost of living pressures are easing…consumer confidence remains weak and surveyors continue to report moderate levels of new buyer inquiries.”
The 1.8 percent year-on-year drop recorded in December was worse than the 1.4 percent drop economists had forecast before yesterday’s figures.
And it’s the biggest drop over the course of a calendar year since a 15.9 percent drop during the 2008 financial crisis.
However, it was a slight improvement from the 2 percent year-on-year drop in November.
The average house price this month was £257,443, around 1.8 per cent lower than a year ago.
And when comparing month to month with November, prices remained unchanged.
Gardner said buyers were struggling to afford homes amid rising mortgage costs, which in recent months remained more than three times 2021’s record lows.
A typical first-time buyer would have to spend 38 percent of take-home pay on their monthly mortgage payment, well above previous years’ average of 30 percent.
And the cost of a deposit to get into housing remains “prohibitively high” for many, Gardner warned.
A 20 percent deposit on a typical first-time home purchase is equal to 105 percent of the median annual gross income.
Still, there have been “encouraging signs”, with mortgage lenders cutting the rates they offer borrowers in anticipation of Bank of England cuts, which should help lift the market in the long term, Gardner argued.
“It seems likely that a combination of strong income growth, coupled with modestly lower home prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim,” said.
Regionally, East Anglia performed the worst in 2023, with prices falling 5.2 percent year-on-year, while London saw a 2.4 percent drop. In Northern Ireland, however, prices rose by 4.5 percent and in Scotland by 0.5 percent.