Quarterly house price growth cools as buyers and sellers come to terms with new normal of higher mortgage rates

The latest Property Market Index Review by London lettings and estate agent, Benham and Reeves, has revealed that house prices fell by -0.6% in Q4 of last year, marking a second consecutive quarter of negative growth across both the UK and London markets. However, the gap between seller asking price expectation and the price paid by buyers also narrowed for the second time since 2022, as buyers and sellers both adjust to the new normal of higher mortgage rates in order to get a sale over the line.

The Benham and Reeves Property Market Index Review is a quarterly accumulation of house price data from the top four existing indices, providing the most comprehensive view of UK and London house price performance. It looks at where the average house price sits overall when taking into account mortgage approved house prices from Halifax and Nationwide, seller expectations via the Rightmove House Price Index, and sold prices from the UK House Price Index.

It also highlights how the market is evolving based on the gap between mortgage approved prices and asking prices, as well as asking prices and sold prices.

Current property values
Based on a geometric mean of all four existing data sets, the index from Benham and Reeves shows the average UK house price sat at £302,912 during the fourth quarter of 2023.

This marked a -0.6% quarterly decline, and the second consecutive quarter of negative house price growth in the UK. On an annual basis, the average UK house price also sat -1.4% lower in Q4 2023 versus Q4 2022.

In London, the current average house price in Q3 2023 was £563,459 having also declined by -0.9% versus the previous quarter.

As with the national picture, this is the second consecutive quarter of negative growth following a -0.2% reduction during Q3 2023, with London house prices also down -2.5% annually.

Market Gap Between Mortgage Approval Price (Buyers) & Asking Price (Sellers)
In Q4 2023, the market gap between the average mortgage approved price of a buyer (271,172)) and the asking price expectation of a seller (£361,811) fell to 33.4% across the UK.

This is the first time that this gap has narrowed since Q3 of 2022, suggesting that sellers are coming to terms with the reduced purchasing power of buyers in the face of higher mortgage rates and adjusting their own price expectations to secure a buyer.

In London, the gap between buyer (£515,132) and seller (£675,839) is 31.2% which also marks a quarterly narrowing. This is the second consecutive quarter that this gap has narrowed, again suggesting that London sellers are more willing to meet in the middle in order to secure a buyer.

Market Gap Between Asking Price (Sellers) & Sold Price (Buyers)
The latest index by Benham and Reeves shows that the gap between the average UK asking price and the average sold price has continued to close.

Across the UK, the average sold price in Q4 2023 stood at £283,285, -21.7% below the average asking price of £361,811. This is the second consecutive quarter that the gap has narrowed rather than expanded since Q4 2022.

In London, the gap between asking price and sold price sits at -24% having expanded on the previous quarter when it narrowed for the first time Q3 2022.

This suggests that London’s sellers are more reluctant to reduce their asking price expectations in order to secure a buyer, instead opting to wait it out for a suitable offer.

Director of Benham and Reeves, Marc von Grundherr, commented:

“A further marginal cooling in house prices during the closing stages of last year was only to be expected given the ongoing headwinds of higher mortgage rates which continued to dampen market activity on the buyer side of the market.

The good news, it looks as though buyers and sellers are coming to terms with this new normal of higher borrowing costs, with both parties seemingly more willing to meet in the middle in order to progress with their plans to move.

Interestingly, London’s sellers have been less willing to adjust their expectations and while this may have resulted in a reduction in overall market activity across the capital, those who do secure a buyer are doing so at a higher percentage of asking price.

It will be interesting to see how the market performs over the year ahead, with mortgage market activity and house prices already starting to regain momentum. Such early signs of returning market health suggest that the gap between asking prices and sold prices could soon start to climb once again, as more buyers look to out bid each other for what stock is available on the market.”