Halifax House Price Index: Pace of Monthly House Price Decline Slows as Market Continues to Weather the Economic Storm

UK house prices fell further in September, edging down by -0.4% on a monthly basis.

This was a sixth consecutive monthly fall, though the pace of decline slowed markedly compared to August (-1.8%).

The average home now costs £278,601, a drop of around £1,200 since last month.

On an annual basis prices are down by -4.7%, largely unchanged from -4.5% in August.

Nonetheless they remain some £39,400 higher than in March 2020, such was the extraordinary growth seen during the pandemic, said Kim Kinnaird, Director, Halifax Mortgages.

Kinnaird continued, activity levels continue to look subdued compared to recent years, with industry data showing lower levels of new instructions to sell homes and agreed sales.

Borrowing costs are the primary factor, given the impact of higher interest rates on mortgage affordability.

Against this backdrop, homeowners inevitably become more realistic about their target selling price, reflecting what has increasingly become a buyer’s market.

However, with Base Rate now likely to be at or around its peak, we are seeing fixed rate mortgages deals ease back from recent highs.

Wage growth also remains strong, which has helped with affordability, with the house price to income ratio now at its lowest level since June 2020 (6.2 in September vs 6.3 in August).

Many economists and financial markets predict that Base Rate will remain higher for longer, with any significant cuts appearing unlikely until inflation gets closer to the Bank of England’s 2% target.

Overall, these factors are likely to keep mortgage rates elevated in comparison to recent years, constraining buyer demand and putting downward pressure on house prices into next year.

House price resilience despite rate increases

The Bank of England’s decision to hold Base Rate at 5.25% at the most recent MPC meeting ended a run of 14 consecutive increases.

This was the fastest monetary policy tightening cycle in recent history.

House prices have proven more resilient than expected over that period, despite higher mortgage rates suppressing market activity.

While property prices are now around £14,000 below the August 2022 peak, they remain +1.0% above the level seen in December 2021 (£275,889), the month when Base Rate first edged up from 0.1% to 0.25%.

However, as we have highlighted previously, there is often a lag-effect between rate increases and the full impact of higher mortgage costs on house prices.

Nations and regions house prices

All UK nations and the nine English regions registered a decline in house prices on an annual basis.

Prices are under the greatest downward pressure in the South East of England, falling by -5.7% over the last year (average house price of £376,450).

Northern Ireland currently has the most resilient house prices, down by just -0.2% compared to this time last year (average house price of £184,108), a fall of less than £400.

Scotland also experienced a relatively modest annual decline of -0.8% (average house price of £201,594). Wales saw property prices fall by -3.6% over the last year (average house price of £214,585).

London remains the most expensive place in the UK to purchase a home, with an average property price of £525,678.

With prices down by -4.8% over the last year, it has seen the biggest fall of any region in cash terms (-£26,514).

Housing activity

HMRC monthly property transaction data shows UK home sales increased slightly in August 2023.

UK seasonally adjusted (SA) residential transactions in August 2023 totalled 87,010 – up by 1.1% from July’s figure of 86,070 (up 11.4% on a non-SA basis).

Quarterly SA transactions (June 2023 – August 2023) were approximately 1.5% higher than the preceding three months (March 2023 – May 2023).

Year-on-year SA transactions were 15.6% lower than August 2022 (15.9% lower on a non-SA basis). (Source: HMRC)

Latest Bank of England figures show the number of mortgages approved to finance house purchases decreased in August 2023, by 8.4% to 45,354.

Year-on-year the August figure was 37.3% below August 2022. (Source: Bank of England, seasonally-adjusted figures)

The RICS Residential Market Survey results for August 2023 remain downbeat.

New buyer enquiries returned a net balance of -47%, down slightly from -45% in July, agreed sales -47% (down from -45% previously) and new instructions -26% (previously -17%). (Source: Royal Institution of Chartered Surveyors (RICS) monthly report)

CEO of Yopa, Verona Frankish, comments:

“Today’s buyers are certainly facing a more challenging task when it comes to the cost associated with climbing the ladder and this is evident given the reduction in mortgage market activity seen in recent months.

As a result, the UK property market is currently treading water where house price growth is concerned, with little change on a month to month basis, while prices continue to sit below the highs seen this time last year.

However, interest rates have finally stopped climbing and although they remain at their highest since the spring of 2008, this should bring about a boost to buyer sentiments over the coming months.

All things considered, the market has so far weathered the storm with respect to the wider economic landscape and should continue to stand firm over the remainder of a year.”

Tom Bill, head of UK residential research at Knight Frank, comments:

“The fact rising interest rates have caused a house price correction was predictable but the extent of the recent volatility was not.

The combination of the mini-Budget and fourteen consecutive rate rises have taken their toll on demand but buyers and sellers should return in greater numbers as a sense of stability returns.

The financial pain entering the system will continue next year as people roll off fixed-rate deals, but there will be an improvement in sentiment, that vital lubricant in the housing market.

We therefore think most of the UK’s house price correction will happen this year and modest single-digit annual growth will return after the next general election.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, comments:

“These figures, though historically reliable, look at mortgage approvals rather than completions, while the country’s largest lender doesn’t include cash purchasers either, which make up an increasingly important part of the market.

Results confirm what we are seeing on the ground – business is bumping along at a new, lower level as buyers and sellers are encouraged partly by expectations of lower interest rates and higher rents making refuge in the lettings market less likely, particularly for those taking their first steps on the ladder.”

Anna Clare Harper, CEO of sustainable investment adviser GreenResi, comments:
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“Softer pricing reflects higher interest rates, which have a greater impact on affordability than asking prices.

It is also a natural next step after 2022 pricing levels, which were inflated artificially by policies such as the stamp duty holiday and very low interest rates.

This month’s average house price is still above average prices at the start of 2022.

Many are asking whether house prices will crash. Unlike in commercial property, where values have fallen by 20-30%, it’s unlikely that we will experience a full house price crash.

Firstly, this is because housing is a necessity, and overall demand for places to live does not change as a result of the strength of the economy.

Secondly, 8.8 million (36%) homes in England are owned outright, meaning they will not be affected by higher mortgage interest rates.

As ever, house-price indices aggregate subtleties in many markets, and in some, for some types of property or in some circumstances, prices will fall more than this, meaning that for investors there are opportunities to buy well.”

Kate Steere, Deputy Editor and Housing Expert at personal finance comparison site finder.com, comments:

“Although base rate increases were finally paused last month, allowing the housing market some much-needed room to breathe, this isn’t going to have any immediate impact on house prices.

As we can see from the figures released today.

According to data released just last week, mortgage approvals have fallen to a six month low, which shows that affordability is still an issue despite lower house prices.

It’s clear that higher mortgage rates are continuing to drag down buyer confidence for now.

However, mortgage providers are beginning to lower some of their rate offerings, which alongside rising wages, is a positive sign for the housing market.

I don’t expect there to be any significant upward trend in the near-future, but we might now start to see a gradual return of increased market activity, as buyers accept the new normal of higher interest rates and slowly begin to re-enter the market.”

Megan Jenkins, Partner at Saltus, comments:

“Today’s 4.7% fall in house prices and the overall slowdown in the housing market seen over the last six months raise significant concerns about the retirement plans of many high net worth individuals.

The Saltus Wealth Index Report, a comprehensive study of 2000 individuals with investable assets of £250,000 or more, revealed that 1 in 30 respondents were pinning their hopes on their home’s value to fund 100% of their retirement.

On average, respondents expected their property to contribute 44% of their retirement funds.

These findings are alarming as relying solely on property for retirement planning is not a recommended strategy.

The cost of purchasing a new home may eat into funds intended for retirement and the unpredictability of the market may result in the need to sell at a lower price than anticipated due to short-term market conditions out of their control.

There is also a significant emotional aspect to consider, with an understandable attachment people often have to their homes making it difficult to downsize when necessary.

The recent decline in house prices and challenging market conditions underscore the importance of diversified retirement planning, particularly for HNWIs.

Relying solely on property to fund retirement carries significant risk and it is crucial for individuals to have a well thought out and diversified plan that takes into account both the financial and emotional aspects.

If you are in any doubt about your retirement plans, you should speak to a financial adviser to work on a solution that is bespoke to you and your needs.”

Commenting on the Halifax house price index and house prices falling for the sixth consecutive month, Tom Brown, Managing Director, Real Estate at Ingenious, said:

“Despite recent property data indicating a small correction in UK house pricing is underway the sector continues to demonstrate its resilience and popularity in the face of high inflation and higher borrowing rates.

Nationally, there remains a significant shortage of housing inventory across most locations and price points.

Consequently, any slow-down in sales volumes from homeowners is likely to be offset by increased demand from renters and investors.

However, it’s essential to note that the situation is not uniform throughout the country and across all price ranges.

When analysing opportunities, it is key to understand the underlying subsectors and regional dynamics.

Taking too broad a view of the market can be misleading.

For instance, the institutional housing sector has experienced fewer disruptions compared to the residential sector due to its long-term investment horizon, rental growth and substantial capital inflows.

With rates forecast to be at or nearing their peak, we maintain a cautiously optimistic outlook and anticipate relative stability in the near future.

At Ingenious, we leverage our market expertise to offer flexible, cost-effective financing solutions to our clients.

We source residential opportunities from across the UK solely based on their individual merit, ensuring the best possible outcomes for our clients.”

Alex Lyle, director of Richmond estate agency Antony Roberts, comments:

“We are finding that the market has yet to shift into top gear following on from the summer lull.

The volume of new instructions remains low in comparison to the spring but having said that, there appears real value in the market.

There are opportunities for buyers who are brave enough not to sit on the fence with an autumn window where competition is more muted and vendors more realistic.

The hold in base rate has given hope that there’s longer-term stability on the way with regards to mortgages, which should improve the confidence of those anxious about committing to a purchase in the present climate.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, comments:

“While everyone is on the watch for potential headwinds, on the whole lenders are much more confident in their ability to price products.

There is much less volatility in the cost of funds than was the case just a few months ago, while there is also a growing feeling that base rate may have peaked.

Lenders are comfortable and confident in the housing market as a whole – we have not seen a widescale withdrawal of higher loan-to-value products as might have been the case if there were greater concerns about an impending house price crash.

The slowdown in the pace of decline in September seems to back that up.

With plenty of evidence of lenders enhancing and broadening policy, it’s another positive sign for the market and bodes well for activity in coming months.”

Managing Director of Barrows and Forrester, James Forrester, comments:

“A sixth consecutive monthly fall may seem like cause for concern but what we’re currently seeing is the market readjusting following a sustained boom period that saw house prices driven to record highs.

This has materialised in the form of a slow but consistent reduction in values rather than the cliff edge drop that many predicted and despite this modest reduction, property values remain substantially higher when compared to the pre-pandemic benchmark.”

Director of Benham and Reeves, Marc von Grundherr, comments:

“Higher mortgage rates have been the key contributing factor with regard to cooling house prices and so it begs the question as to just how high they may have climbed if inflationary pressures didn’t force interest rates to climb.

It’s likely that this reduction in buyer affordability will remain an issue over the long term until such a point that the Bank of England finally gets a grip on inflation.

However, while market activity may have reduced somewhat, the market is still ticking along and we don’t expect any drastic realignment in house prices to materialise.”

Managing Director of House Buyer Bureau, Chris Hodgkinson, comments:

“It’s only natural that while interest rates have risen, buyer appetites have diminished and, as a result, we’ve seen the tables turn in respect to the supply and demand balance within the market.

This isn’t to say that sellers aren’t still achieving a fair price, however, they certainly aren’t benefiting from the feeding frenzy of multiple buyers fighting it out for the same property.

This means that transaction times are taking significantly longer and those who do want to sell their home at speed will need to compromise on price in order to secure a buyer quickly.”

Sam Mitchell, CEO of Purplebricks, comments:

“There is a large lag indicator to the Halifax data and what we at Purplebricks are seeing on the ground is sentiment turning towards the housing market.

It has changed quite dramatically over recent weeks, driven by news inflation was lower than expected and the Bank of England’s somewhat unexpected decision to hold interest rates.

Normally we would be seeing the start of a seasonal slow down at this point but instead we have seen a spike in both properties coming to market and buyers viewing and making offers.

We can see that mortgage rates coming down is really helping consumer confidence in restarting house searches that have previously been paused and expect this momentum to continue through October.

For tenants, this drop in rates is welcome news when rents have been at extortionate levels for some time now.

For first time buyers, this is the first moment in many months when the dream of becoming a homeowner can become a reality.”