The UK housing market experiences a decline in home prices for the first time in nine months, resulting in cracks appearing.

• In December, U.K. house prices experienced a decline for the first time in nine months due to the impact of the country's Budget and increased mortgage rates on homebuyer activity.
• The average property prices decreased by 0.2% from November to December, marking the first monthly decline since March, according to new data from Halifax.
• After the government's Oct. 30 Budget, the housing market started showing signs of instability, according to Tom Bill, head of U.K. residential research at Knight Frank, who shared this information with CNBC.

In December, the UK experienced a decline in house prices for the first time in nine months, due to the impact of the Budget and increased mortgage rates on homebuyer activity.

The average property prices decreased by 0.2% from November to December, marking the first monthly decline since March, according to Halifax's fresh data. This was lower than the 0.4% price increase predicted by economists surveyed by Reuters.

The average property value in the country decreased slightly to £297,166 ($372,560).

In December, house prices increased by 3.3%, but the annual growth rate was lower than the predicted 4.2% and decreased from the previous month's 4.7%.

Following the data release Tuesday morning, the shares of U.K. homebuilders , , and all declined.

In 2024, U.K. house prices experienced a steady rise, with five consecutive months of increase after a brief period of stagnation. This was due to a positive shift in sentiment following the U.K. election and the start of the Bank of England's rate cutting cycle.

The government's tax-and-spend Budget led to an increase in U.K. borrowing costs, which put pressure on transactions at the end of the year.

The head of mortgages at Halifax, Amanda Bryden, stated that the market will continue to be impacted by higher mortgage rates in 2025, despite moderate price growth.

Many will continue to face challenges with mortgage affordability, particularly as the Bank Rate is predicted to decrease at a slower pace than previously anticipated, according to Bryden.

A second crack in the housing market

The decline in house prices was caused by lower-than-expected mortgage approvals in November and October, as reported by the Bank of England on Friday.

Knight Frank's head of U.K. residential research, Tom Bill, stated that the combined prints revealed that the housing market had started to show signs of instability following the government's October 30th Budget, which cast doubt on the country's economic future.

"Bill informed CNBC's "Street Signs Europe" that a slowdown is inevitable due to the rise in borrowing costs."

Homebuyers and sellers are expected to increase transactions in the first months of this year due to changes in a key homebuyer tax.

From April 1, buyers will face higher transaction costs as the government has ended the pandemic-era reduction in Stamp Duty Land Tax.

Stephen Perkins, managing director at Yellow Brick Mortgages, stated that the stamp duty changes are a significant factor in current demand, which is positively impacting property values.

Bill predicted that the increase in deals would be temporary, with a decline expected from the second quarter onwards.

"There's a ticking clock to some degree," he said.

Knight Frank revised its U.K. property price growth forecasts in November, expecting average property prices to increase 2.5% in 2025 and 3% in 2026, down from 3% and 4%, respectively, forecast in August.