UK house prices manage growth over 2022, but drops forecast for 2023

Strong price growth moved out of the South East in 2022, as gap between regions narrowed

New residential and commercial apartments tower over the East End in London. Prices in London are up 17.7 percent, the biggest jump since July 2007, according to ONS data. Dan Kitwood / Getty Images

New residential and commercial apartments tower over the East End in London. Prices in London are up 17.7 percent, the biggest jump since July 2007, according to ONS data. Dan Kitwood / Getty Images

Construction continues on new residential and commercial apartments in London’s East End. The Bank of England has said it plans to use other tools to deal with any housing overheating before raising interest rates. Dan Kitwood / Getty Images

Construction continues on new residential and commercial apartments in London’s East End. The Bank of England has said it plans to use other tools to deal with any housing overheating before raising interest rates. Dan Kitwood / Getty Images

A man walks past a sign advertising new luxury apartments in London’s East End. The UK lender Nationwide said house prices in London in the first three months of the year were around 20 per cent higher than before the crisis. Dan Kitwood / Getty Images

Construction continues on new residential and commercial apartments in London’s East End. The Bank of England has said it plans to use other tools to deal with any housing overheating before raising interest rates. Dan Kitwood / Getty Images

A woman walks past a sign advertising new luxury apartments in London’s East End.tThe Organisation for Economic Co-operation and Development said that Britain should take action over soaring house prices, perhaps by scaling back the government’s mortgage guarantee scheme. Dan Kitwood / Getty Images

The Bank of England has played down suggestions the UK housing market is overheating, and plans to use other tools to deal with any housing overheating before raising interest rates. Dan Kitwood / Getty Images

Construction continues on new residential and commercial apartments in London’s East End. Prices in London are up 17.7 percent, the biggest jump since July 2007, according to ONS data. Dan Kitwood / Getty Images

House prices in London are up 17.7 percent, the biggest jump since July 2007, according to ONS data. Dan Kitwood / Getty Images

Annual house price growth in the UK fell for the fourth consecutive month in December to 2.8 per cent, from 4.4 per cent in November, the latest figures from Nationwide Building Society show.

Prices fell 0.1 per cent month-on-month, a smaller decline than in previous months. Taking into account seasonal effects, house prices are 2.5 per cent below their August peak, Nationwide said.

“The fact that the housing market remained buoyant in the first three quarters of 2022, despite weak consumer confidence on the back of a stagnant economy, falling real incomes and a near tripling of mortgage rates, provides some reassurance that there will be a pickup in activity in the New Year, although it is likely to remain tepid until the broader economic outlook improves," said Robert Gardner, chief economist at Nationwide.

Matthew Thompson, head of sales at estate agent Chestertons, said the market had been supported by "seasoned buyers" in December.

"Meanwhile, first-time-buyers and second steppers have been more hesitant and decided to observe how the market might develop in the new year," he said.

Falls in all regions

Annual house price growth slowed in all the UK's regions over the final quarter of 2022, Nationwide said.

The most pronounced decline was recorded in the South West, where price growth slumped from 12.5 per cent to to 4.3 per cent over the course of the year.

At 6.6 per cent over 2022, East Anglia had the strongest growth, while Scotland registered the weakest house price growth at 3.3 per cent.

London remained the weakest performing region in England, with house price growth falling to 4.1 per cent in the final quarter of 2022, from 6.7 per cent in the third quarter.

“While recent years have seen relatively weak house price growth in London, looking back since the turn of the century it remains the top performing region, with average house prices having increased by 304 per cent since 2000 (by comparison UK average earnings have increased by around 85 per cent over the same period). It has also been the strongest performing region in six out of the last 23 years," Mr Gardner said.

The weakest performing region over the past 23 years has been Northern Ireland. Nonetheless, average house prices there have risen by 185 per cent in that time.

One interesting trend that emerged from the Nationwide's numbers was a narrowing of the gap between the various regions of the UK.

The difference in house price growth in the fourth quarter between the strongest performing region (East Anglia) and the weakest performing region (Scotland) was 3.3 per cent, which is the smallest gap recorded since the Nationwide began its regional indices back in 1974.

The largest-ever gap was recorded in the first quarter of 1989, when average house price growth in East Midlands was 53.3 per cent higher than in Northern Ireland.

Flats vs Houses

Since the pandemic, there has been a divergence in price growth trends between houses and flats in the UK, the Nationwide said.

Over the past two years, the average price of a detached house has grown by 26 per cent. Meanwhile, over the same period, flats only increased by 13.4 per cent. Over the course of 2022 alone, detached houses managed price growth of 5.9 per cent, while the average flat only increased in price by 2.1 per cent.

Overall, the average house price in the UK in the final quarter of 2022 was £265,195, according to the Nationwide's figures. London remains the most expensive region in the UK, with the average house in the capital costing £528,000 in the final quarter of 2022. Northern Ireland had the UK cheapest average house price in the quarter at £176,637.

A year of two halves

Meanwhile, research by Halifax, which is part of Lloyds Banking Group, shows that 2002 was a year of two halves in house price growth terms.

Annual house price growth in the year to November was 4.7 per cent. In June, it was 12.5 per cent, which was the strongest rate of annual growth since January 2005.

But as the Bank of England continued to move interest rates higher and inflation moved into double digits, the second half of 2022 saw a flattening of house price growth and a 2.3 per cent fall on a monthly basis in November.

“As the increasing cost of living puts more pressure on household finances and rising interest rates impact customers’ monthly mortgage payments, there’s understandably now more caution among both buyers and sellers, particularly following recent market volatility, which has seen demand soften as people take stock," said Andrew Asaam, Homes Director at the Halifax.

Price growth slows in South East and London

Research by Halifax also shows that most of the strength in house price growth was in towns and cities outside the UK's South East region.

The city of York in north England had the largest house price growth in 2022, up 23.1 per cent or £69,648 on average in cash terms.

Swansea had an increase of 17.5 per cent or £39,450, making the average house in the Welsh city priced at £265,379.

Three places in the East Midlands made the Halifax's top ten table of house price risers.

Kettering, Derby and Wellingborough all recorded house price growth above 15 per cent.

Kim Kinnaird, mortgages director, Halifax, said: "Overall 2022 was another year of rapid house price growth for most areas in the UK.

"And unlike many years in the past, the list isn't dominated by towns and cities in the South East," she added.

One big exception to this was the commuter town of Woking in Surrey, with its good transport links to central London. The cost of buying a home in Woking leapt from £493,299 in 2021 to £586,925 as 2022 drew to a close, an increase of £93,626 or 19 per cent.

The UK towns and cities that showed the weakest house price growth in the 12 months to November, according to Halifax were Leicester and Hull, with average falls of 3.6 per cent and 2.9 per cent respectively.

House price growth in London was subdued during 2022, with five of the capital's boroughs making the Halifax's top 10 weakest performers list.

These included Islington, where house prices managed just 0.4 per cent growth and Hackney, where prices rose 1.7 per cent or £10,743, taking the average house price in the borough to £639,995.

"London prices were more muted due to affordability constraints that predate the pandemic, which mean prices in the commuter belt and beyond should continue to outperform the capital in the medium-term." said Tom Bill, head of UK residential research at estate agent Knight Frank.

Price falls in 2023

Looking towards 2023, the Halifax predicts an 8 per cent fall in house prices next year. While that may sound dramatic, it would actually only return prices to levels recorded 18 months ago.

"To put this into perspective, such a fall would place the average property price back at roughly the level it was in April 2021, reversing only some of the gains made during the pandemic. There is still uncertainty around this forecast, with the trajectory for Base Rate (now expected to peak at 4 per cent) and unemployment levels key to determining any future changes,” said Andrew Asaam of the Halifax.

For the property website Zoopla, buyers will be far more cautious and price sensitive in 2023. Because of this buyer quest for value, flats will see an increase in demand, given that they have underperformed the rest of the market recently, Zoopla predicted.

"Serious sellers need to be realistic on price and get the advice of an agent on how to market their home. While mortgage rates will start 2023 lower, the impact on pricing will be felt more in the higher value markets of southern England than the more affordable markets elsewhere," said Richard Donnell, executive director at Zoopla.

Nationwide predicts a slightly better 2023 for the UK housing market next year, with percentage falls in house prices below those forecast by its peers.

“The risks are skewed to the downside, but there is still a good chance that we can achieve a relatively soft landing next year with activity stabilising modestly below pre-pandemic levels and house prices edging lower, perhaps by around 5 per cent." said Robert Gardner, Chief Economist at the Nationwide.

For many economists and market watchers, the biggest contributing factor to downside risk in the UK's housing market in 2023 is unemployment. Should that increase substantially, the effect on house prices could be more dramatic than otherwise forecast. However, a serious increase in unemployment is viewed as an outside possibility at best - most predictions, including the UK government's own forecast, see an increase in the unemployment rate to 5 per cent towards the end of 2023, a significant rise on the current 3.7 per cent, but still very modest by historical standards.

"A significant deterioration in the labour market or more elevated mortgage rates would probably be required to generate the double-digit declines suggested by some forecasters. While the risks are skewed in that direction, it doesn’t appear to be the most likely outcome," said Mr Gardner.