House prices rose by just £2,353 on average last year, as a slowdown in London and the South East dragged growth down, the Halifax index showed.
And there were further signs of a cooling UK housing market as house prices ended the year with the first monthly fall in six months. Halifax forecasts a rise of between 0 and 3 per cent for 2018.
The price of the average UK home fell by 0.6 per cent, or almost £1,400, in December, to end 2017 at £225,021.
Housing slowdown: UK house prices fell by 0.6% in December
Annual house price growth more than halved through last year to 2.7 per cent in December 2017, down from 6.5 per cent in December 2016.
Halifax’s data follows Nationwide’s numbers last week showing the smallest annual rise in house prices in any year since 2012 at 2.6 per cent.
But the headline numbers mask a divided picture, where the previously red hot London and South East markets have dramatically slowed down and even started to see prices fall, while regional cities are seeing more robust price growth.
Russell Galley, managing director at Halifax Community Bank, said: ‘As we’d anticipated, the housing market in 2017 followed a similar pattern to the previous year.
‘House price growth slowed, whilst building activity, completed sales and mortgage approvals for house purchase all remained flat. This has been driven by a squeeze on real wage growth and continuing uncertainty over the economy.
However, he believes house prices will continue to rise at a similar pace this year, supported by the ongoing shortage of properties for sale, low levels of housebuilding, high employment and continued low mortgage rates.
House price forecasts for 2018 are generally subdued, with analysts predicting that London and the commuter belt will continue to struggle but regional cities will do better.
New instructions continued to worsen, marking the 22nd month of consecutive falls
‘Overall we expect annual price growth to continue in the range of 0-3% at the end 2018,’ he added.
Halifax, which bases its numbers on its mortgage offers, said mortgage approvals remained flat at the end of last year.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that because Halifax’s numbers are based on its mortgage offers, it captured the impact of the rise in borrowing costs following the base rate rise in November.
‘Looking ahead, the recent further decline in new buyer interest reported by RICS and NAEA, as well as the drop in consumer confidence, indicates that upward pressure on prices will remain modest,’ he said.
‘Furthermore, we remain concerned that new mortgage rates will rise further from the end of February, when new lending by banks no longer will generate borrowing allowances from the Term Funding Scheme.’
Halifax also said that new buyer enquiries stabilised a little after a sharp decline in autumn, while new instructions from buyers continued to worsen, marking the 22nd month of consecutive falls.
Affordability problem: Despite a slowdown, house prices remain quite unaffordable
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said the figures confirmed a slowdown, rather than a collapse, in the housing market and that home sellers were in for tougher negotiations this year.
Halifax confirms what we are seeing on the high street – that a lot of hard bargaining is going on
Jeremy Leaf, estate agent
‘There is no doubt that prices are softening, particularly in London, but Halifax also confirms what we are seeing on the high street – that a lot of hard bargaining is going on and people are generally trying to get on with their moves.
‘We don’t expect to see any great change in the next few months but the realistic players will succeed, whereas those wedded to the idea of the housing market we have seen in previous years will simply not sell.’