House prices started to rise again in 2023, says Halifax

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House prices have stopped falling and are rising again, according to a closely watched report from the mortgage lender Halifax.

The average property price last month rose by 1.1 per cent in December. It was the third monthly rise in a row and well above economists’ forecasts of a 0.1 per cent increase.

After a weak spring and summer, the strong end to the year means that house prices rose by 1.7 per cent in 2023 to an average of £287,105, almost £5,000 more than this time last year. Entering 2023, most economists had predicted that prices would fall by between 5 per cent and 10 per cent, possibly more, across the year.

Kim Kinnaird, director of Halifax Mortgages, said the surprise increase in prices probably reflected “a shortage of properties on the market, rather than the strength of buyer demand”.

The property market in Northern Ireland was the strongest of any UK region last year, with prices there improving 4.1 per cent across 2023 to an average of £192,153. Prices in Scotland, the northwest of England and Yorkshire also rose year-on-year.

By contrast, the southeast, where homes are dearest, came under most pressure, with prices declining 4.5 per cent in 2023.

When viewed alongside a similar monthly index from Nationwide, another big high street lender, Halifax’s data suggests a stabilisation in the housing market after a sustained downturn brought on by sharply higher mortgage rates. Between October 2022 and August 2023, Nationwide calculated that prices fell in nearly every month, before starting to pick up towards the end of last year, albeit modestly. Halifax’s metric recorded price falls for six straight months up until October, since when it thinks prices have consistently risen.

Imogen Pattison, assistant economist at Capital Economics, said the latest data from Halifax “confirms that falls in mortgage rates are translating into renewed increases in house prices”.

In contrast to Halifax, Nationwide still has prices as being 1.8 per cent lower year-on-year. Pattison attributed the difference to Halifax’s index being “more sensitive” to changes in mortgage rates and expects the Nationwide index “to play catch up over the coming months”.

House prices boomed during the pandemic, as a combination of cheap money, stamp duty holidays and the lockdown-induced “race for space” pushed many to look for somewhere new to live. The jump in mortgage rates that followed the mini-budget in the autumn of 2022, however, sent the market into reverse. Almost immediately housebuilders and estate agents reported a sudden and sharp drop-off in demand.

Such was the strength of the market in 2021 and 2022, though, that Halifax estimates that prices remain almost £50,000 higher, on average, than before the pandemic erupted.

The financial markets are betting that the Bank of England, and other central banks, are unlikely to raise interest rates much further. Mortgage lenders have responded this week by cutting their own rates.

Reflecting that, and the probability that the government will bring in some sort of support for first-time buyers before the general election, Anthony Codling, a housing industry analyst at RBC, expects prices to rise again in 2024. “Our pessimism was misplaced in 2023, and we don’t want to make the same mistake twice,” he said.

Similarly, Pattison had predicted that prices would fall 1.5 per cent this year, but she now thinks they will increase by 3 per cent. “The drop in average quoted mortgage rates from 5.9 per cent in July 2023 to just over 4 per cent now will improve affordability meaning demand from mortgaged buyers will continue to recover,” she said.

Kinnaird is less certain, predicting a fall of between 2 per cent and 4 per cent this year, although she noted that “forecast uncertainty remains high given the current economic climate”.