The mortgage lender’s house price index for December showed a 0.1% monthly drop in prices, which is a little lower than the 1.4% fall experienced in November.
Over the year the average UK property price has increased by 2.8% meaning the typical home is currently worth £262,068.
All regions of the UK experienced a ‘record slowdown’ in the final quarter of 2022, according to Nationwide with East Anglia performing the strongest and Scotland the weakest.
In fact, prices across the nations were 2.5% lower than their August peak, the report revealed.
Robert Gardner, Nationwide’s chief economist, said: “While financial market conditions have settled, mortgage rates are taking longer to normalise and activity in the housing market has shown few signs of recovery.
“It will be hard for the market to regain much momentum in the near term as economic headwinds strengthen, with real earnings set to fall further and the labour market widely projected to weaken as the economy shrinks.”
What will happen to house prices in 2023?
One of the drivers of the housing market is mortgages and Gardner thinks the turmoil created by the mini-Budget in the autumn, which sent rates soaring, had deterred potential buyers at the end of 2022.
He thought they may wait instead until the New Year to see how mortgage rates evolved before making a decision to purchase a home.
So, how does he think mortgage rates will fare in 2023? “Longer-term interest rates, which underpin mortgage pricing, have returned towards the levels prevailing before the mini-Budget” Gardner explained.
“If sustained, this should feed through to mortgage rates and help improve the affordability position for potential buyers, as will solid rates of income growth (with wage growth currently running at a c.7% pace in the private sector), especially if combined with weak or negative house price growth.
“But the main factor that would help achieve a relatively soft landing (especially for house prices) is if forced selling can be avoided, and there are good reasons to be optimistic on that front.”
He thinks house prices will experience a ‘modest decline’ of around 5% in 2023. Unless there was a significant number of job losses or a big leaps in mortgage rates, double digit falls would be unlikely, he added.
Tomer Aboody, director of property lender MT Finance, said soaring energy and food prices would also have an impact on the housing market this year.
“As the cost-of-living increases at the same time as rates, buyers are more cautious of taking on bigger commitments, so although we might not see a huge fall in house prices in 2023, a slowdown in transactions will see a slight decrease in pricing.
“We have seen good growth in 2022, especially in the house market where space is still key and in areas which provide good commutes for consumers and green space, such as the South West.
“This trend is likely to continue, especially as many companies are still happy for staff to work from home.”
