What has Happened to House Prices this Summer?

By  //  October 1, 2023

As we head into autumn – after a frankly lackluster summer – homeowners, prospective buyers, and property enthusiasts are eager to understand the current state of the UK housing market.

With the recent release of Nationwide’s House Price Index for August, we explore what has been happening to house prices this summer and the likely trajectory going forward. 

A snapshot of the UK housing market and house price growth 

The UK’s housing market has been the subject of much discussion in recent years, with an extraordinary increase in house prices of over 25% between 2020 and 2022 as a result of dwindling supply versus huge demand, generous financial incentives introduced to reinvigorate the housing market during the covid-19 pandemic and extremely favourable interest rates.

However, this was not to last. Thanks to the energy crisis, rising inflation and the fallout from the mini budget in September 2022, both house price growth and the overall number of property transactions began to slow in 2022 as interest rates, and concurrently mortgage rates, went through the roof. 

From its double-digit vantage point, house price growth fell to 2.8% by December 2022 and worse was to come as we experienced the largest decline in average annual house prices since July 2009 earlier this year, with growth continuing to fall since then.

One of the standout findings from Nationwide’s most recent House Price Index remains this deceleration of house price growth. The annual growth rate stood at just 1.9% in August, down from 2.1% in July 2023, which shows that whilst the market may still be growing for now, it is doing so at a much more measured pace.

Regional variations persist

As is often the case in the UK housing market, regional disparities in house prices still exist in 2023. London and the South East, traditionally regarded as hotspots for property investment, have continued to see slower growth compared to other regions since the covid-19 pandemic and the retreat from urban areas. Indeed, according to Nationwide, the North West, for instance, has experienced stronger price growth in recent months, demonstrating the shifting dynamics of the market.

The role of supply and demand

A key driver of house price trends is the interplay between supply and demand. Whilst the supply of homes for sale has remained quite constrained, acting as a cushion to declining house price growth, the robust demand for housing has slowed somewhat since 2022 and even more so in the summer of 2023 as we have experienced the pressures of the cost of living crisis and the highest mortgage rates we have seen in more than a decade. 

Despite this fluctuation, house prices still remain around 20% higher than the pre-pandemic market of 2019, making it increasingly challenging for first-time buyers to enter the market, even though we are seeing a significant rise in interest from this group thanks to spiralling rental prices. Indeed, nearly 28% of properties purchased so far this year have been purchased by first-time buyers in comparison to 18% 14 years ago. 

Government policies and affordability

Government policies, including measures to promote home ownership and affordability, have also played a pivotal role in shaping the housing market in recent years, particularly for first-time buyers. Policies such as Help to Buy and the Stamp Duty exemptions from 2020-2022 sought to make property ownership more accessible to a broader range of people. 

To try and keep this momentum going and make the purchasing process more affordable, the Government has temporarily increased the nil rate for stamp duty on both normal residential property purchases and first-time buyer purchases from 23 September 2022 – 31 March 2025 and, despite the closure of the Help to Buy scheme, there are still a number of other ways to get help from the Government when it comes to buying a home, such as the Shared Ownership scheme and Lifetime ISA. 

When it comes to house prices, it is important to keep an eye on how these policies evolve and the impact they have on the market, particularly as political and economic landscapes change.

The impact of economic factorsWhilst regional variations, supply and demand dynamics and Government policies all have their part to play, economic factors such as inflation and interest rates have a huge influence on the housing market. 

Inflation – which is currently still much higher than the Bank of England would like at 6.8%  – can erode the real value of properties over time and rising interest rates can significantly increase the cost of borrowing for buyers, causing a significant cooling when it comes to demand. As such, the Bank of England’s decisions on monetary policy should be closely watched as they can have significant implications for the housing sector.

With an anticipated base rate rise from 5.25% to 5.5% predicted on 21 September 2023, and further rises expected to follow to try and tackle inflation, even more homeowners who had been protected by favourable fixed rate mortgage deals will start to feel the impact of rising interest rates over the next 12 months. 

What the future may hold for the housing market

While it’s difficult to predict the precise trajectory of the UK housing market, current trends and figures from the likes of Nationwide and Halifax indicate that the era of double-digit house price growth that we have seen in recent years is likely to be over for now.

Instead, we are likely to see a more stable and balanced market, with growth rates influenced by all of the factors mentioned above. Indeed, prospective sellers and homebuyers are becoming more aware of affordability constraints, with Rightmove noting a drop in the number of agreed sales in August 2023 and the highest rate of reduction in asking prices since January 2011 as more realistic property valuations have become the order of the day.   

So the summer of 2023 has brought with it a changing landscape for UK house prices, and the market is set to continue evolving in the months ahead, with predictions of a drop in house prices of anywhere from 2-12% from industry insiders such as Rightmove (2%), Knight Frank (5%), the Office for Budget Responsibility (9%) and Capital Economics (12%) as we continue to feel the impact of increased mortgage rates and inflation tugging at our purse strings. 

However, given the hugely inflated growth we have seen in house prices since 2020, even a double-digit fall in house prices will still leave us ahead of the post-pandemic 2019 housing market, in what would seem to be a reset rather than a market crash. More positively, a slow return to growth across the next 5 years has also been forecast.