(Bloomberg) -- UK house prices finished 2023 little changed from a year ago, defying predictions for a sharp downturn, figures from one of the biggest mortgage lenders indicated.

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Nationwide Building Society said its measure of property prices fell 1.8% from a year ago in December to £257,443 ($328,650), slightly higher than the 1.3% drop economists forecast last week but much less than the 10% drop most had expected a year ago.

A shortage of properties on the market along with robust demand helped the market hold up better than most forecasters had predicted. Prices strengthened in each of the past four months as mortgage costs eased, reflecting expectations the Bank of England will start lowering its key lending rate next year.

“Housing market activity was weak throughout 2023,” Nationwide’s Chief Economist Robert Gardner said in a statement Friday. “The total number of transactions has been running at 10% below pre-pandemic levels over the past six months, with those involving a mortgage down even more.”

What Bloomberg Economics Says ...

“A resilient labor market and a limited supply of properties up for sale may help put a floor under house prices. Meanwhile, signs interest rates have peaked may encourage more activity. Still, Bank of England data show interest rates on mortgages are more than triple their level in early 2022. That will lower purchasing power and limit what buyers can offer. That should translate into broadly flat home prices in 2024 relative to 2023 as highlighted by our model, with risks in both directions.”

—Niraj Shah, Bloomberg Economics. Click for REACT.



Prices were unchanged in the month of December after a 0.2% gain the month before. Economists had expected an 0.1% increase in the month, which would have been the fourth consecutive rise.

“With mortgage rates falling, it is increasingly likely that house prices avoid falls altogether next year,” said Andrew Wishart, senior property economist at Capital Economics.

The average value of UK homes has now dropped almost 4.5% below their peak in late summer 2022, Nationwide said. The lender is predicting house prices to remain flat or fall by as much as 2% in 2024. Estate agents are seeing some evidence that the market is stabilizing and may even strengthen.

“December is usually quiet but the first three weeks of this month saw buyers emerging left, right and center,” said Stephen Perkins, Managing Director at Norwich-based Yellow Brick Mortgages. “Demand was much higher than usual and did not drop off as early for the festivities as in previous years. As ever, there are far too few properties available for the growing swell of interested buyers to purchase.”

While house prices have held up better than expected in 2023, despite higher mortgage rates constraining affordability, Gardner said any rises were likely to be gradual.

“A rapid rebound in activity or house prices in 2024 appears unlikely,” Gardner said. “While cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, consumer confidence remains weak and surveyors continue to report subdued levels of new buyer inquiries.”

UK consumers are increasingly worried about their financial security and holding tighter to their purse-strings heading into 2024, reviving concerns that the economy could tip into a recession. A survey by KPMG UK showed 41% of consumers say they’re feeling less financially secure than at the end of 2022.

Separate data from Barclaycard showed card spending increased just 4.1% over 2023 despite ever-rising prices, less than half the 10.6% gain a year ago and near the rate of inflation. The figures indicate households have cut back on clothing, eating out and home improvements.

Over 2023, Northern Ireland and Scotland were the only two regions where house prices grew, at 4.5% and 0.5% respectively. East Anglia was the weakest region, with prices down 5.2% on a year ago. London was the best-performing southern region, with a decline of 2.4%.

Some estate agents were optimistic about the year ahead. Emma Jones, managing director at Frodsham-based mortgage broker When the Bank Says No, said it was “no ordinary December” with the market “definitely starting to improve.”

And Mike Staton, Director at Mansfield-based broker Staton Mortgages, said the first three weeks of December “were the busiest run-up to Christmas we have had on record.”

--With assistance from Harumi Ichikura.

(Updates with detail from the report and comment.)

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