Kim Kinnaird, Director at Halifax Mortgages, has commented following house prices falling again in September.
She said: “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.
“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 mortgage 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).
