Our House Price Index, which measures the rise and fall in house prices across the UK, shows that house prices rose by 0.1 per cent last year.

This was the slowest annual rate of house price growth since August 2012, as higher mortgage rates and cost of living pressures weakened demand and reduced the number of sales.

House prices are falling in the South of England, down -1.0 per cent in London and the East of England, -0.9 per cent in the South East and -0.8 per cent in the South West.

However, house prices are rising in the rest of the UK, with Scotland experiencing the highest annual growth rate of 1.7 per cent.

In the last 4 weeks, demand from home buyers has been 34% lower than the average over the last 5 years. This has resulted in a 20 per cent drop in total property sales.

In turn, there has been a reduction in price pressure, which has led to slower or falling house price growth - as we have seen in the South of England.

Currently, high mortgage rates above 5 per cent are having the biggest impact on house prices, as this reduces demand from several key groups of homebuyers.

Homeowners with mortgages typically account for a third of property sales each year. They tend not to be in a rush to buy a home, so many will wait for mortgage rates to fall before making a move.

First time buyers also account for a third of sales and most have previously rented their homes. Historically, it has been cheaper to make monthly mortgage payments than to buy, which has encouraged first-time buyers to get on the property ladder.

But for the first time in 13 years, renting has become cheaper than monthly mortgage repayments. This has deterred first-time buyers and led to a fall (or slowdown) in house prices at the lower end of the market.

Landlords using mortgages account for around 8 per cent of property sales in the UK. They now need to have more equity in order to buy a property worth renting out - in the south of England this is 40-50 per cent - reducing demand from investors.

Cash buyers are the only group not being squeezed by rising mortgage rates, and we expect sales in 2023 to be 1% lower than in 2022. But continued demand from this group alone will not be enough to spur generalised house price growth.

We expect house prices to fall by a further 2 per cent this year, bringing the overall fall in UK house prices to 5 per cent in 2023.

However, areas where house prices are more affordable, like the North of England and Scotland, will continue to see low house price growth of up to 2 per cent.

Although the days of strong house price growth have been over for some time, we do not expect house prices to fall significantly in 2023 or 2024.

More flexible working, demographic trends from an ageing population, a strong labour market and high levels of migration will continue to encourage people to move, albeit to a lesser extent than would be the case if mortgage rates were more affordable.

In addition, rapid wage growth is narrowing the gap between household incomes and house prices, thereby increasing affordability. This is particularly the case in London, where house prices have been falling since 2016.

Our house price index shows a clear north-south divide in house price inflation. This is largely due to the difference in average house prices between the two.

All regions in the South of England saw house prices fall by up to -1 per cent last year.

Higher mortgage rates have had a greater impact on homebuyers in the higher value housing market, as they require larger deposits, larger mortgages and higher incomes.

This prevents more people from moving to the South of England, which reduces house price growth.

Outside the South of England, house prices continue to rise due to lower average property values.

Scotland has seen the highest annual growth in house prices at 1.7 per cent, whilst the North West has seen house prices rise by 1.2 per cent.

House price increases were smaller in Yorkshire and the Humber (0.9 per cent), the West Midlands (0.8 per cent), the North East (0.6 per cent), the East Midlands (0.5 per cent) and Wales (0.5 per cent).

Local housing markets in the South of England led the way in annual house price falls, particularly in commuter areas close to London.

The largest fall in house prices was in Hertfordshire, with average selling prices falling by up to £14,640 in Three Rivers (-2.5%), Hertsmere (-2.4%), Watford (-2.4%) and St Albans (-2.3%).

Neighbouring Essex also saw house prices fall, with average asking prices in Southend (-2.4%), Castle Point (-2.3%) and Rochford (-2.3%) dropping by £9,550.

Prices also fell in Harrow (-2.7 per cent) and Redbridge (-2.3 per cent) in London and Weymouth and Portland (-2.3 per cent) on the Dorset coast.

House prices are not falling everywhere in the UK. In particular, house prices remain fairly resilient in Scotland and in parts of the north of England.

Areas not far from Glasgow and Edinburgh have seen strong house price growth, including Falkirk (2.9 per cent), Clackmannanshire (2.8 per cent), Stirling (2.8 per cent), West Lothian (2.8 per cent) and South Lanarkshire (2.5 per cent).

In the North West, Calderdale (4.6 per cent) and Cheshire West and Chester (2.5 per cent) saw house price rises, while Flintshire in North Wales (2.8 per cent) also made the list.

House prices in these areas have risen by between £3,000 and £8,000 since summer 2022.

The cheapest areas in the UK for house prices are the rural areas east of Glasgow - East Ayrshire, Inverclyde, West Dunbartonshire, North Ayrshire and North Lanarkshire - with average house prices of £120,000 or less.

With the affordable housing market less hit by high mortgage rates, house price growth in most of these areas continues to be low, topping out at 2.5 per cent.

"Scottish property is moderately priced and has high relative incomes, which makes it easier for many people to move," says Izabella Lubowiecka, senior property researcher at Zoopla.

When it comes to the most expensive places to buy property, it's none other than London and the South East.

Kensington and Chelsea and the City of Westminster are the only areas in the UK where average house prices have passed the £1 million mark. Both areas have seen house prices fall by 1 per cent in the last year.

The 10 most expensive areas in the UK have all seen a fall in house prices. The rate of decline ranged from -0.3 per cent (-£2,260) in Richmond-upon-Thames to -2 per cent (-£13,260) in the Chiltern district of Buckinghamshire.