Rents have surged at a record rate while house prices have fallen annually for the first time in more than a decade, according to official figures.
London house prices have dropped 1.1 per cent since September 2022, according to the Office for National Statistics (ONS).
An average house in London was worth £537,000 in September 2023, the ONS reported,
Rental prices in London, on the other hand, rose by 6.8 per cent annually in October – the highest annual rate since records for London started in January 2006.
Meanwhile, the average UK house price fell by 0.1 per cent in the 12 months to September 2023 — marking the first time since 2012 that there has been an annual drop.
“A 0.1 per cent drop in average house prices over 12 months might sound small beer, but it’s worth noting that this is the first time prices have retreated on an annual basis for more than 11 years," said Jonathan Hopper, chief executive of Garrington Property Finders."As recently as summer last year, they were rising at a gravity-defying 13.8 per cent.”
House prices drop while rents soar
Across the UK, the typical property value was £291,000 in September 2023.
Average house prices over the 12 months to September 2023 decreased in England to £310,000 (falling by 0.5 per cent), dropped in Wales to £215,000 (down 2.7 per cent), but increased in Scotland to £195,000 (a 2.5 per cent rise).
Average house prices increased by 2.1 per cent to £180,000 over the year in Northern Ireland.
Within England, the North East recorded the highest annual percentage change of the regions in the 12 months to September 2023 (1.6 per cent), while the South West recorded the weakest growth (average house prices there fell by 1.6 per cent).
A separate ONS report showed that private rental prices paid by tenants in the UK increased by 6.1 per cent in the 12 months to October 2023 – representing the biggest annual percentage change since comparable records started in January 2016.
"Renters are suffering as a result of the pace of rent rises, and the only way to reverse the trend of rising rents is for policy to encourage more and better supply," said Anna Clare Harper, CEO of GreenResi.
Annual private rental prices increased by 6.0 per cent in England, 6.9 per cent in Wales, and 6.2 per cent in Scotland in the 12 months to October 2023.
Inflation down but will interest rates follow?
The figures were released on the same day that Consumer Prices Index (CPI) inflation figures were published.
The CPI inflation measure eased to 4.6 per cent in October, down from 6.7 per cent in September, according to data from the ONS.
Prime Minister Rishi Sunak said his pledge to halve inflation by the end of the year has been “delivered”.
“The latest fall in inflation announced today will further boost hopes that interest rates could soon start to drop and entice more buyers to the market," said Nicky Stevenson, managing director at estate agent group Fine & Country.
Frances McDonald, director of research at estate agent Savills, cautioned not to get hopes up about any imminent cuts to interest rates.
“Whilst today’s inflation data came in below the Bank of England’s expectations, core inflation and wage growth remain obstinately high and so we’re unlikely to see a cut to the base rate before mid-next year, in line with our house price forecast expectations," said McDonald
“The ONS house price index for September also tallies with continued downward pressure on house prices which is likely to remain in the short term, whilst rates are high and mortgage affordability remains stretched.
House price predictions
Savills said it is forecasting UK mainstream house prices to keep falling in 2024.
"Once mortgage rates fall more significantly and there’s a marked improvement in the UK economy, though we’re not expecting annual price growth to return until 2025," said McDonald.
Mortgage adviser Ross McMillan, owner of Glasgow-based Blue Fish Mortgage Solutions, said: “Buyer sentiment has noticeably changed in Scotland and it’s clear that pent-up demand from those who have been sitting on the sidelines for most of 2023 seems likely to burst on to the market in the early part of 2024.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Swap rates, which underpin the pricing of fixed-rate mortgages, have dropped sharply in the past couple of days, with the better-than-expected inflation news pegging them back further…
“Increasingly, it appears as though base rate may have peaked, which will be welcome news for hard-pressed borrowers.”
He added: “If mortgage rates continue to fall and borrower affordability continues to improve, we would expect house prices to be fairly flat or even pick up slightly, albeit in a low volume market.”
Nathan Emerson, chief executive of property professionals’ body Propertymark, said: “We currently have the situation of consumers being extremely mindful regarding affordability and such people will likely only commit to the housing market once they feel assured of a long-term stability – mainly in the form of lower interest rates.”
Tom Bill, head of UK residential research at estate agent Knight Frank, said: “We think most of the price decline has now taken place and activity will improve next year as the mortgage market and economic backdrop stabilise.”
Jake Finney, an economist at PwC UK, said: “While we do not anticipate any rate rises soon, the impact has not fully been felt yet by homeowners.
“Around one in three mortgaged households have still to see their mortgage rates change since the Bank of England started hiking rates in late 2021.
“Our analysis indicates that the average household coming off a fixed-term mortgage could see their annual repayments increase by around £3,000.”
