"We do expect further downward pressure on property prices through to the end of this year and into next, in line with previous forecasts. While any drop won’t be welcomed by current homeowners, it’s important to remember that prices remain some £40,000 (+17%) above pre-pandemic levels"
This morning's figures released by Halifax have revealed more of what we have come to expect from an embattled housing market facing continued downward pressure on its prices.
Nations and regions house prices
All UK nations and the nine English regions registered a decline in house prices over the last year. However, northern locations are generally proving to be more resilient than areas in the south, according to the lender.
Buyers faced with the need to find larger deposits and fund bigger monthly repayments means the South East is experiencing the biggest drop. House prices have fallen by -5.0% on an annual basis with average house prices sitting at £379,565.
Wales, which recorded some of the biggest gains in property prices during the pandemic-driven race for space, has seen property prices fall by -4.7% over the last year (average house price of £212,967).
In Northern Ireland property prices have fallen by -1.5% annually and have average house prices of £182,700. In Scotland, property prices fell by just -0.6% over the last year, the slowest pace of decline in the UK. House prices in Scotland currently stand at £201,932.
London remains the most expensive place in the UK to purchase a home, with an average property price of
£529,814. However with prices down by -4.1% over the last year, it has seen the biggest fall of any region in cash terms (-£22,777).
Kim Kinnaird, Director, Halifax Mortgages, said: “UK house prices fell again in August, with the monthly drop of -1.9% the steepest since last November, following a period of relative stability. The average home now costs £279,569, down by around £5,000 since July, and back to the level seen at the start of last year.
"On an annual basis, prices fell by -4.6%, the biggest year-on-year decrease since 2009, though it should be noted that this is relative to the record-high property prices seen last summer.
“It’s fair to say that house prices have proven more resilient than expected so far this year, despite higher interest rates weighing on buyer demand.
"However, there is always a lag effect where rate increases are concerned, and we may now be seeing a greater impact from higher mortgage costs flowing through to house prices. Increased volatility month-to-month is also to be expected when activity levels are lower, though overall the pace of decline remains in line with our outlook for the year as a whole.
“Market activity levels slowed during August, and while there is always a seasonality effect at this time of year, it also isn’t surprising given the pace of mortgage rate increases over June and July. While these did ease last month, rates remain much higher compared to recent years.
"This may well have prompted prospective buyers to defer transactions in the hope of some stability, and greater clarity on the future direction of rates in the coming months. The market will continue to rebalance until it finds an equilibrium where buyers are comfortable with mortgage costs in a higher range than seen over the previous 15 years.
“We do expect further downward pressure on property prices through to the end of this year and into next, in line with previous forecasts. While any drop won’t be welcomed by current homeowners, it’s important to remember that prices remain some £40,000 (+17%) above pre-pandemic levels.
"It may also come as some relief to those looking to get onto the property ladder. Income growth has remained strong over recent months, which has seen the house price-to-income ratio for first-time buyers fall from a peak of 5.8 in June last year to 5.1. This is the most affordable level since June 2020, and will be partially offsetting the impact of higher mortgage costs.”
Tom Bill, head of UK residential research at Knight Frank, said: “House prices have fallen as mortgage rates have risen but the political and economic volatility of the last 12 months has taken its toll on sentiment. Buyers and sellers knew interest rates would rise after being close to zero for 14 years, they just didn’t expect it to feel like being strapped into a roller-coaster.
"We don’t anticipate a cliff-edge moment for prices but a single-digit decline this year is likely to be repeated next year. A strong jobs market, lender flexibility and the prevalence of fixed-rate deals in recent years will all act as shock absorbers but sentiment will only improve when there is more certainty that the current cycle of rate hikes is over. Even then, the adjustment to higher borrowing costs and the looming general election mean we don’t expect a housing market firing on all cylinders.”
James Briggs, Head of Personal Finance Intermediary Sales at Together comments: “While the latest dip in house prices may open up buying opportunities for those in a position to snap up discounted homes - the reality is affordability on new purchases remains a barrier for most first-time buyers. And, with further Bank of England rate rises forecasted, hopeful borrowers are tracking mortgage pricing closely with careful consideration of when to strike for the best deal.
"With the continued squeeze on household budgets, an estimated 35% of people’s take-home pay is now being diverted to cover mortgage repayments. This may trigger further issues later this year and lead to more subdued activity.
"Indeed, market forecasts suggest that the rate of mortgage approvals will fall for Q3, dropping to around 40,000 by September, from 55,000 in June. With the overall 30% year-on-year drop in mortgage approvals looking likely, potential buyers should consider specialist lenders, who have the ability to assess finances on a case-by-case basis.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: "With the markets still pricing in another 50 basis points rate rise, affordability will prey on buyers’ minds for a while yet and they are bound to be price sensitive because of it.
"The good news for borrowers is that lenders continue to reduce their fixed rates. Not only that but criteria are also broadening as evidenced by HSBC increasing its mortgage term to 40 years, as appetite to lend returns."
Matt Thompson, head of sales at Chestertons, says: “With higher interest rates impacting on UK households, property buyers are adopting a more strategic and flexible property search by adjusting their budget or widening their search criteria to find a suitable home.
"Although some buyers took a break during the August holidays, others utilised last month to enter price negotiations or seal the deal by signing contracts.”