Rents have surged at a record rate while house prices have fallen annually for the first time in more than a decade, according to official figures.
The average UK house price fell by 0.1% in the 12 months to September 2023, according to the Office for National Statistics (ONS), marking the first time since 2012 that there has been an annual drop.
Across the UK, the typical property value was £291,000 in September 2023.
Average house prices over the 12 months to September 2023 decreased in England to £310,000 (falling by 0.5%), dropped in Wales to £215,000 (down 2.7%), but increased in Scotland to £195,000 (a 2.5% rise).
Average house prices increased by 2.1% to £180,000 over the year in Northern Ireland.
Within England, the North East recorded the highest annual percentage change of the regions in the 12 months to September 2023 (1.6%), while the South West recorded the weakest growth (average house prices there fell by 1.6%).
A separate ONS report showed that private rental prices paid by tenants in the UK increased by 6.1% in the 12 months to October 2023 – representing the biggest annual percentage change since comparable records started in January 2016.
Rental prices in London rose by 6.8% annually in October – the highest annual rate since records for London started in January 2006.
Annual private rental prices increased by 6.0% in England, 6.9% in Wales, and 6.2% in Scotland in the 12 months to October 2023.
ONS head of housing market indices Aimee North said: “Our initial estimate of UK house prices show they fell very slightly in the year to September.
“The steepest annual falls were in Wales and southern England, while prices continued to grow over the year in Scotland and many areas of northern England and the Midlands.
“Meanwhile the rise in rental prices continues to accelerate across the country, with Wales, London and Scotland seeing the biggest annual increases.”
The figures were released on the same day that Consumer Prices Index (CPI) inflation figures were published.
The CPI inflation measure eased to 4.6% in October, down from 6.7% in September, according to data from the ONS.
Prime Minister Rishi Sunak said his pledge to halve inflation by the end of the year has been “delivered”.
Nicky Stevenson, managing director at estate agent group Fine & Country, said: “The latest fall in inflation announced today will further boost hopes that interest rates could soon start to drop and entice more buyers to the market.”
Frances McDonald, director of research at estate agent Savills, said: “Whilst today’s inflation data came in below the Bank of England’s expectations, core inflation and wage growth remain obstinately high and so we’re unlikely to see a cut to the base rate before mid-next year, in line with our house price forecast expectations.
“The ONS house price index for September also tallies with continued downward pressure on house prices which is likely to remain in the short term, whilst rates are high and mortgage affordability remains stretched.
“Savills is forecasting UK mainstream house prices to fall by 3.0% overall in 2024 but they are likely to begin recovering from the middle of next year onwards, once mortgage rates fall more significantly and there’s a marked improvement in the UK economy, though we’re not expecting annual price growth to return until 2025.
“From then, affordability is likely to gradually improve and, as we see a progressive restoration in buying power, price growth will accelerate, peaking at 6.5% in 2027 and leading to total five-year growth of 17.9% to 2028.
“The prime housing markets of the UK are likely to pick up sooner next year due to less reliance on mortgage debt allowing buyers to respond more quickly to improved sentiment.”
Jonathan Hopper, chief executive of Garrington Property Finders, said: “A 0.1% drop in average house prices over 12 months might sound small beer, but it’s worth noting that this is the first time prices have retreated on an annual basis for more than 11 years. As recently as summer last year, they were rising at a gravity-defying 13.8%.”
Mortgage adviser Ross McMillan, owner of Glasgow-based Blue Fish Mortgage Solutions, said: “Buyer sentiment has noticeably changed in Scotland and it’s clear that pent-up demand from those who have been sitting on the sidelines for most of 2023 seems likely to burst on to the market in the early part of 2024.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Swap rates, which underpin the pricing of fixed-rate mortgages, have dropped sharply in the past couple of days, with the better-than-expected inflation news pegging them back further…
“Increasingly, it appears as though base rate may have peaked, which will be welcome news for hard-pressed borrowers.”
He added: “If mortgage rates continue to fall and borrower affordability continues to improve, we would expect house prices to be fairly flat or even pick up slightly, albeit in a low volume market.”
Nick Leeming, chairman of estate agent Jackson-Stops, said: “Across Jackson-Stops’ national network, key commuter towns such as Oxted and smaller cities such as Norwich, Chelmsford and Truro in October saw an unwavering level of interest from buyers which simply does not match up to the number of properties available to buy, helping to insulate prices.
“However, in other local areas we know the situation has become much more equal, with sellers embracing greater realism in their asking prices in order to ensure offers turn into completions – a clear sign that the enthusiastic pricing of 2020 and 2021 has been left in the rear-view mirror.”
Nathan Emerson, chief executive of property professionals’ body Propertymark, said: “We currently have the situation of consumers being extremely mindful regarding affordability and such people will likely only commit to the housing market once they feel assured of a long-term stability – mainly in the form of lower interest rates.”
Tom Bill, head of UK residential research at estate agent Knight Frank, said: “We think most of the price decline has now taken place and activity will improve next year as the mortgage market and economic backdrop stabilise.”
Jake Finney, an economist at PwC UK, said: “While we do not anticipate any rate rises soon, the impact has not fully been felt yet by homeowners.
“Around one in three mortgaged households have still to see their mortgage rates change since the Bank of England started hiking rates in late 2021.
“Our analysis indicates that the average household coming off a fixed-term mortgage could see their annual repayments increase by around £3,000.”