House prices fell for the fourth consecutive month in December, down -0.1%, which put annual growth for 2022 at 2.8% according to Nationwide. This was due to strong price growth up to Q3 and price falls over Q4. Annual house price growth was strongest in the East of England and the West Midlands, growing by 6.6% and 6.2% respectively. Price growth was weakest in Scotland and London, at 3.5% and 4.2%. Values are likely to fall across all regions this year, with our forecasts expecting a drop of -10.0% on average across the country as a whole.

Lower market activity has accompanied the recent price falls. Mortgage approvals dropped -28.6% in November compared to the 2018-19 November average, according to the Bank of England, while the RICS survey also continued to report falling levels of both demand and supply in November. New instructions and sales agreed were -7.5% and -11.5% below the 2018–19 average for December, according to TwentyCI.

But sales completion numbers have remained high: transactions were 2.9% above the 2017-19 average in November. Many of these purchases will have been made with mortgage agreements predating the mini-budget. We therefore expect transactions to fall in the near term and remain at reduced levels throughout 2023.

Activity will remain constrained by higher mortgage rates and challenging affordability. Mortgage interest rates are expected to remain high throughout 2023. Inflation is likely past its peak, but is still expected to be above the 2.0% target at the end of the year with incomes falling in real terms. The combination of these factors will continue to increase the pressure on affordability. Oxford Economics expect the base rate to peak at 4.0% in February, with the first falls anticipated in early 2024. Our forecasts anticipate that house prices will only increase when incomes start to rise and interest rates fall.

Buyer confidence will be subdued by the wider economic outlook, as the UK is predicted to be in recession for most of 2023. The consensus amongst leading economists points to a shallow recession, with a low impact on employment, limiting the risk of significant mortgage arrears.

House price growth was strongest in North Norfolk and Argyll and Bute, where prices grew by 21.4% and 19.7% on average in the year to September. Small falls were recorded in Aberdeen City and East Renfrewshire, which fell by -3.1% and -1.5% respectively.

UK monthly rental growth slowed to 0.9% in November, according to Zoopla. Annual growth decelerated in every region except for the East of England, North East, and Scotland. Annual growth in London remains far higher than the rest of the UK, but slowed for the fourth consecutive month. Falls were recorded in Richmondshire and South Lakeland.

The recent growth in London is a fast recovery from sharp falls during the pandemic, with rental growth in the city over the three years to November 2022 at 16.4%, compared to national growth of 18.3% over the same period. Over this three year period, rental growth was strongest in Wales and the South West, growing by 23.9% and 23.1% respectively.