UK house prices in December fell for the fourth month in a row, the longest run since 2008, as the average price of a home dropped to £262,068, according to Nationwide.

Annual house price growth also slowed sharply as the year drew to a close, to the lowest rate since mid-2020, with all regions of the country affected, according to the building society’s monthly survey.

Nationwide Building Society said its measure of property costs dropped 0.1% last month, marking the longest downturn since 2008 at the end of the global financial crisis.

For 2022 as a whole, Nationwide said property prices finished the year 2.8% above where they were at the end of last year, about a third of the pace of growth in 2021. The average price of a residential property in December fell to £262,068.

Soaring interest rates and the sharpest cost-of-living squeeze in memory strained affordability for many buyers, whose wages are falling further behind the worst bout of inflation in four decades. Mortgage rates are now near where they were in 2008 when housing costs were in the middle of a 16-month slump.

Robert Gardner, Nationwide’s chief economist, said: “It will be hard for the market to regain much momentum in the near term as economic headwinds strengthen, with real earnings set to fall further and the labor market widely projected to weaken as the economy shrinks.

“A fourth monthly decline in the UK nationwide house price index shows the housing correction rumbling on in December. We see home values falling nearly 10% in the coming year as higher mortgage rates bite and the biggest squeeze on real incomes in a generation continues.”

The Bank of England lifted its key rate nine times over the past year, bringing the benchmark to 3.5%, which is also the highest since 2008. That’s set to hit mortgage holders hard, with those who need to remortgage likely to see their monthly payments double.

Nationwide forecasts a 5% fall in house prices in 2023.

Lawrence Bowles, director of research at Savills, commented: “The pace of house price falls slowed in December, with monthly falls easing back from -1.4% in November to -0.1% in December on a seasonally adjusted basis. That continued decline means average prices are now back to where they were right before March of this year.

“With the Bank of England still set to raise rates further and no sign yet of any significant reduction in mortgage rates, we’re expecting to see slower housing market activity in the mainstream markets over the next twelve months. Activity is expected to remain strongest in those parts of the market least reliant on mortgage debt: specifically in equity and cash rich prime markets, where demand is driven more by flows of equity than by changes to mortgage rates.

“Savills has forecast that the average UK house price will fall by -10% in 2023, with growth expected resume in 2024 as affordability pressures gradually ease (net +6% over 5 years). But prices will start rising again in 2024 as we see interest rates start to fall. By contrast, we expect Prime Central London values to contract by just -2% in 2023, and to rise by 13.5% between now and the end of 2027.”

Tom Bill, head of UK residential research at Knight Frank, concurred: “The steep monthly house price declines that followed the mini-Budget have reduced as mortgage market volatility calms down. However, borrowing costs have become more expensive as well as more stable, which will keep downwards pressure on prices.

“Despite the fact mortgage rates should keep edging down, when the spring selling season gets underway in 2023, a fixed-rate mortgage is likely to be more than 2.5 percentage points higher than this spring, meaning many movers will have to reassess their options. We believe UK house prices will decline by around 10% over the next two years as these sorts of recalculations happen, taking prices back to the level of summer 2021.”

Also reflecting on the latest Nationwide House Price Index, Nathan Emerson, chief executive of Propertymark, commented: “As the average house price continues to fall, a gradual shift back to a more realistic and sustainable market is emerging which we would expect to continue into 2023.

“Our latest data provided to us by our member agents shows that 72 per cent of sales agreed were secured below the asking price in November. This is because competition has dropped by over a third, from a high of 11 new buyers to every new property instructed.

“The sales market is firmly back in the hands of buyers who have been on the back foot for 18 months, so it remains a good time to buy. We would expect to continue to see people keeping a close eye on trends and being more sensible when purchasing compared to what was seen previously seen.”