The Nationwide house price index showed the average home valued at £257,443 in December. This was a fall on the previous month where house prices stood at £258,557 on average.
The report said house prices were nearly 4.5 per cent lower than the record high seen in summer 2022.
Northern Ireland and Scotland saw gains
Over 2023, declines were recorded in all regions except for Northern Ireland and Scotland where there were house price increases of 4.5 per cent and 0.5 per cent respectively.
East Anglia saw the sharpest fall in average house prices with a 5.2 per cent annual drop.
Overall, there was a 2.9 per cent decline in house prices across England when compared to the final quarter of 2022, while Wales saw a 1.9 per cent decrease.
In the north of England, house prices fell by 1.8 per cent with Yorkshire and Humber coming out as the best performing northern region with a 0.5 per cent yearly fall.
In the south of England, there was a 3.4 per cent annual fall in house prices, and London was the best performing region with a 2.4 per cent decline.
Preference for smaller homes
Nationwide’s report showed that transaction numbers for flats outperformed other property types as people looked to buy smaller, less expensive homes.
Robert Gardner, chief economist at Nationwide, said: “This may be because affordability for flats has held up relatively better as they experienced less of a price increase over the pandemic period.”
Nationwide’s data revealed the average price of flats increased by 11 per cent since Q1 2020, while detached homes saw 22.6 per cent growth over the same period. The average price of semi-detached homes rose by 21.4 per cent and terraced properties by 19.3 per cent.
Compared to last year, semi-detached homes fell by 1.8 per cent in value while flats and terraced houses both declined by 2.1 per cent. Detached properties fell by 2.7 per cent, making them the worst performing property type.
Predictions for house prices
Gardner said housing market activity was “weak throughout 2023” with transactions running at around 10 per cent below pre-pandemic levels in the latter half of the year, and around 20 per cent down for mortgaged purchases.
He said cash purchases were higher than pre-pandemic levels.
The report said housing affordability was still stretched and the average first-time buyer with a 20 per cent deposit would have monthly mortgage payments amounting to 38 per cent of their take-home pay. It noted this was significantly higher than the long-running average of 30 per cent.
It said deposit requirements were still “prohibitively high” for many buyers too.
Looking ahead, Gardner said falling mortgage rates would be encouraging for potential buyers in 2024, as well as the prospect of a decline in the base rate.
He added: “It appears likely that a combination of solid income growth, together with modestly lower house prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim.
“If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline or remain broadly flat (perhaps zero growth to a two per cent decline) over the course of 2024.”
