Highest drop in house prices in a decade but 2024 looks brighter with falling interest rates

According to today’s UK House Price Index from the Office for National Statistics, average UK house prices are now £288,000 in October 2023, £3,000 (1.2%) lower than October 2022 and the steepest annual drop since October 2011.

In England, the North East was the only region to record an increase in house prices in the 12 months to October, rising by 0.2%, while London saw the steepest fall (3.6%) in average house prices, marking its lowest annual inflation rate since August 2009.

Stacy Eden, national head of real estate and partner at leading audit, tax and consulting firm RSM UK, comments: ‘Despite the record falls in house prices in the year to October 2023, property prices are effectively static with the cost-of-living crisis, inflation, and relatively high interest rates being countered by a lack of housing – underpinning prices. With widespread falls across the UK, we expect to see house prices continue a gentle downward trend, underpinned by a chronic lack of supply. This is especially true in London, which saw the steepest fall in house prices, meanwhile the region’s rental prices continue to surge at their fastest pace since 2006. However, there is a feeling that the corner is being turned as we look forward to lower interest rates in 2024 with the cost of five-year mortgages falling to below 4%.

‘What is of concern is the dramatic fall in transactions which is approximately 20% below expected normal levels, and there is an argument that the market has partly come to a standstill with buyers and sellers holding fire and housebuilders significantly scaling back on activity. This is part of the reason for higher rent costs as first time homebuyers struggle to get on the housing ladder. However, on a national level, the price of new builds has increased by more than 10% over the last year, which shows that developers are responding to what people want, with new builds generally providing lower energy and maintenance costs.’

He added: ‘As the government looks for supply side reforms to kickstart the UK economy, then resolving the supply and demand equation (through planning reforms) seems to be an obvious place to start. It is quite clear the opposition realise the shortage of housing is causing too many people to rely on the state to provide their housing needs as rental growth causes rent to take too high a proportion of income. However, the government seems to be unable to deal with the chronic lack of housing – highlighted by scrapping local targets. With the Autumn Statement falling short on tackling this issue, the industry will be hoping the Spring Budget outlines plans to reduce SDLT and bring liquidity to the market.’