Halifax House Price Index: The Political & Economic Volatility of the Last 12 Months has Taken its Toll

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, said Kim Kinnaird, Director, Halifax Mortgages.

Kinnaird continued, 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 now 5.1.

This is the most affordable level since June 2020, and will be partially offsetting the impact of higher mortgage costs.

Nations and regions house prices

All UK nations and the nine English regions registered a decline in house prices over the last year, with northern locations generally proving to be more resilient than areas in the south.

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 (average house price of £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 (average house price of £182,700).

In Scotland property prices fell by just -0.6% over the last year, the slowest pace of decline in the UK (average house price of £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).

Housing activity

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

UK seasonally adjusted (SA) residential transactions in July 2023 totalled 86,510 – up by 0.8% from June’s figure of 85,820 (down 8.9% on a non-SA basis).

Quarterly SA transactions (May 2023 – July 2023) were approximately 3.3% lower than the preceding three months (February 2023 – April 2023).

Year-on-year SA transactions were 16.3% lower than July 2022 (21.7% 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 July 2023, by 9.5% to 49,444.

Year-on-year the July figure was 21.7% below July 2022. (Source: Bank of England, seasonally-adjusted figures)

The RICS Residential Market Survey results for July 2023 show key metrics continuing to decline.

New buyer enquiries returned a net balance of -45%, up slightly from -46% in June, agreed sales -44% (down from -36% previously) and new instructions -15% (previously -3%). (Source: Royal Institution of Chartered Surveyors’ (RICS) monthly report)

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

“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.”

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

“Prices continue to soften although they are supported to a degree by the shortage of stock and fewer but more serious buyers.

With so many rate rises, affordability is a concern, especially for those on tighter budgets, often buying smaller properties so the market remains price sensitive.

The penny has dropped for the majority of sellers who are recognising that they may not achieve what they originally anticipated.

As many sellers are also buyers, they realise that although they may have to accept less than they initially wanted for their property, they will also pay less for their next home which is significant as many will be trading up.

Those sellers who refuse to recognise that prices are softening will remain on the market and may end up having to accept a lower price in order to make their move.”

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

“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 is also broadening as evidenced by HSBC increasing its mortgage term to 40 years, as appetite to lend returns.”

Gareth Lewis, managing director of property lender MT Finance, comments:

“It is natural that we will continue to see this downward trend around values, although it is not armageddon as prices are still higher than they were pre-pandemic.

When there is a low interest rate environment, it is ultimately a sellers’ market because they can command higher prices as more people want to buy and have the means to pay over the odds.

Since then, there has been a realignment with borrowers paying more for their money and therefore more conscious of what they are paying.

With fewer buyers around, they know there is less competition so are not going to pay inflated values but will try that low-ball offer.”

Kate Steere, deputy editor and mortgage expert at personal finance comparison site finder.com, comments:

“It’s extremely concerning to see another significant decline in house prices during August.

The UK housing market is currently at risk of a crash, and with another base rate hike largely expected at the end of this month, house prices are set to take another hit.

The recent growth in UK wages along with lower house prices should be a perfect combination for those looking to buy, but the benefits of these conditions are currently offset by the extremely high mortgage rates we’ve seen over the last 12 months.

The threat of significantly higher monthly payments has knocked buyer confidence, and created a downward spiral in housing prices.

I’m hopeful that we are nearing the peak of interest rate rises, and following the announcement in September, the Bank of England might look to pause rate hikes moving forward.

This would allow the market room to breathe and begin to restore some buyer confidence. However, until this happens, I expect that house prices will remain low.”

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

“Such a sharp annual decline will certainly spur panic amongst the nation’s homebuyers and sellers at first glance.

But it’s important to remember that this time last year the market was flying high at the peak of the pandemic price boom, so it would have taken a monumental spike in market activity this time around to avoid an annual decline in property values.

It’s also important to note that August is peak silly season in the UK property market and so there is very much a seasonal influence at play here.

Buyers, sellers and property professionals alike will have taken time off for their summer breaks, the result of which is a reduction in market activity and a more sluggish rate of house price growth.”

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

“What goes up must come down. What we’re now seeing is the market ‘return to normality following the sustained levels of house price growth spurred by the stamp duty holiday at the start of the pandemic.

This decline has been intensified by additional factors such as the consistent increase in interest rates and the increased cost of borrowing, however, we don’t anticipate this drop to be the tip of the iceberg.

House prices remain far higher than they were pre-pandemic and it would take a substantial market crash to reverse this. Given the overall health of the market, this simply isn’t on the cards.”

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

“Buyer indecision continues to dampen market sentiment, with the majority still unwilling to borrow the sums required to satisfy seller expectations.

As a result, property values have continued to level out as predicted and this will remain the case until a middle ground is reached.

For sellers, this means a further adjustment where their asking price expectations are concerned if they want to secure a buyer.

However, the required adjustment is marginal in comparison to the house price increase they will have enjoyed over the last few years.”