The Nationwide – the mortgage lender behind one of the UK’s leading house price indices – says there have been some encouraging signs for the housing market as the new year dawns.

“Investors have become more optimistic that the Bank of England has already raised rates far enough to return inflation to target and will reduce rates in the years ahead. This shift in view is important, as it has brought down longer-term interest rates, which underpin fixed mortgage rate pricing” says Nationwide’s chief economist, Robert Gardner.

But he cautions: “Nevertheless, a rapid rebound in activity or house prices in 2024 appears unlikely. 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 enquiries.

“Moreover, while markets are projecting that the next Bank Rate move will be down, there are still upward risks to interest rates. Inflation is declining, but measures of domestic price pressures remain far too high.

“It appears likely that a combination of solid income growth, together with modestly lower house prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim. If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline or remain broadly flat (perhaps 0.0 to 2.0 per cent) over the course of 2024.”

During 2023, there were signs that more buyers were looking towards smaller, less expensive properties, with transaction volumes for flats holding up better than other property types.

Nationwide says this may be because affordability for flats has held up relatively better as they experienced less of a price increase over the pandemic period. Average prices for flats have increase by 11.0 per cent since Q1 2020 – around half the 22.6 per cent increase for detached properties over the same period.

However, the lender says it’s seen a convergence in the annual rate of price growth for different property types. 

During 2023, the price of semi-detached properties held up best, recording a 1.8 per cent year-on-year fall. Meanwhile, flats and terraced houses both saw a 2.1 per cent annual decline, while detached properties were the weakest performing with prices down 2.7 per cent over the year.