According to the latest provisional House Price Index from the Office for National Statistics, average UK house prices dropped by 0.1% in the 12 months to September.
The ONS said that the decline, which compares to a revised 0.8% increase in August, was the first official fall since April 2012.
The average price of a home in the UK was £291,000, slightly below September 2022.
By region, the biggest falls were seen in Wales, where prices fell 2.7% to £215,000. In England they eased 0.5% to £310,000, but in Scotland they increased by 2.5%, to £195,000.
Month-on-month, house prices decreased by 0.5% in September on a seasonally-adjusted basis, following a 0.7% uplift in August.
Private rents, meanwhile, rose by an average of 6.1% in the year to October, the ONS noted, the biggest annual increase since records began in 2016.
Data published on Wednesday also showed a larger-than-expected fall in inflation, to 4.6% in October, although it remains well above the central bank’s 2% target.
Iain McKenzie, CEO of The Guild of Property Professionals, commented: “The property industry has shown resilience to economic pressures this year and while 2023 got off to a bad start, we are now seeing stability in house prices.
“One major factor to consider is that unlike the 2008 financial crisis, we haven’t seen an aggressive drop-off in property transactions. This suggests that while household budgets are squeezed, the demand for quality housing remains constant.
“The property market in Scotland and Northern Ireland have proven to be the most robust, with prices rising in the past year, compared to modest falls in England and Wales.
“While this is all good news for sellers, many first-time buyers will have been hoping for a greater adjustment in prices.
“With the Chancellor’s Autumn Statement around the corner, it would be welcome news to see some more incentives introduced to help potential buyers get their foot on the ladder. Prior to the cabinet reshuffle, we were at least expecting an extension of the mortgage guarantee scheme for a further year.
“It will be interesting to see whether anything is brought in to help those with lower incomes.”
Nick Leeming, chairman of Jackson-Stops, said: “The relatively modest change in house prices in today’s ONS figures reflect a market driven by varying supply levels and increasing needs-based buyers. Whilst house prices are continuing to adjust and settle into their new normal, it is clear there is a powerful undercurrent of resilience that keeps the market steady.
“Though the market is largely balanced, with wider analysis suggesting that the UK housing market will outperform forecasts this year, the pendulum continues to swing drastically across different areas of the country.
“Across Jackson-Stops’ national network, key commuter towns such as Oxted and smaller cities such as Norwich, Chelmsford and Truro, in October saw an unwavering level of interest from buyers which simply does not match up to the number of properties available to buy, helping to insulate prices.
“However, in other local areas we know the situation has become much more equal, with sellers embracing greater realism in their asking prices in order to ensure offers turn into completions – a clear sign that the enthusiastic pricing of 2020 and 2021 has been left in the rear-view mirror.
“As we enter a traditionally quieter period for completions and instructions, with the national mood shifting from moving boxes to mulled wine, the recent news that some highstreet lenders are bringing sub-5% deals back to the table will be a well-timed boost of confidence to buyers. Coupled with the UK avoiding a recession once again in Q3, stability is the order of the day.”
Verona Frankish, CEO of Yopa, commented: “We’ve already seen early signs that a freeze on interest rates has helped to stabilise the market, with both Nationwide and Halifax reporting monthly increases in October, as buyers start to return to the fold with a greater degree of confidence.
“While we’re yet to see any notable change with respect to actual sold prices, it’s important to remember that these figures are reported on a lag and It’s only a matter of time before this uplift in market activity starts to filter through to the prices being achieved by the nation’s sellers.
“What’s more, there are whisperings of yet another stamp duty incentive set to be unveiled in the Autumn Statement this month and we know the positive impact this can bring from past experiences.”
Frances McDonald, director of research at Savills, remarked: “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.
“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. Savills is forecasting UK mainstream house prices to fall by -3.0% overall in 2024 but they are likely to begin recovering from the middle of next year onwards, 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.
“From then, affordability is likely to gradually improve and as we see a progressive restoration in buying power price growth will accelerate, peaking at 6.5% in 2027 and leading to total five year growth of 17.9% to 2028.
“The prime housing markets of the UK are likely to pick up sooner next year due to less reliance on mortgage debt allowing buyers to respond more quickly to improved sentiment.”
Tom Bill, head of UK residential research at Knight Frank, stated: “The footnote tells a more important story than the headline figures. Sales volumes have fallen by about a fifth, making it more difficult for the Land Registry to calculate its index, which is the real story of this slowdown.
“Price declines have been kept in check by hesitant buyers and sellers but thin trading means house price data should be handled with care. There is no single event keeping activity in check as there was during the pandemic or after mini-Budget but rising mortgage rates and economic, political and geopolitical uncertainty are all sapping sentiment.
“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.”
Fred Jones, COO at UPSTIX, said: “If other industry measures, such as those from major lenders – which tend to use more recent data than the ONS – are any indication, homeowners should brace for more pain before things get better.
“A core issue driving down prices is low demand, which also means extended transaction times and sales more likely to fall through.
“In this environment, it’s not all about prices: it’s speed and certainty that sellers need most.”
Jonathan Hopper, CEO of Garrington Property Finders, added: “The oil tanker has finally begun to turn. Months of price cutting on the property front line have at last been reflected in the official figures.
“A 0.1% 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. As recently as summer last year, they were rising at a gravity-defying 13.8%.
“Yet while the lag in the ONS data means it’s likely to show further falls in coming months, the dark clouds that have been parked over the property market for the past year are beginning to part. For some sectors of the market, the correction may soon be complete.
“This morning’s big fall in consumer price inflation has given sentiment a welcome shot in the arm. The share prices of several major housebuilders have risen as the markets bet on interest rates coming down more quickly than previously thought.
“While mortgage interest rates are still painfully high compared to what they were for more than a decade following the financial crisis, they have already come down from this year’s peak and two more major lenders have today announced rate cuts as a price war gets underway.
“This should get the market flowing more freely. The biggest casualty of the market correction has been the number of homes being sold – transactions in September were 17% down on the same month last year – and the softening in interest rates should bring more potential buyers out of the woodwork to see what they can afford in this post-correction market.
“With inflation cooling sharply, people’s disposable income is rising again – and this will gently nudge up demand in coming months, even if every buyer will continue to factor price risk and higher borrowing costs into what they’re prepared to pay.”