UK house prices fell in July for the first time in a year amid rising interest rates and surging inflation, according to a survey released on Friday by Halifax.
House prices dipped 0.1% on the month following a 1.4% increase in June.
On the year, growth in July eased to 11.8% from 12.5% the month before, with the average house price now standing at £293,221 compared to £293,586 in June.
Halifax managing director Russell Galley said: “While we shouldn’t read too much into any single month, especially as the fall is only fractional, a slowdown in annual house price growth has been expected for some time. Leading indicators of the housing market have recently shown a softening of activity, while rising borrowing costs are adding to the squeeze on household budgets against a backdrop of exceptionally high house price-to-income ratios.
“That said, some of the drivers of the buoyant market we’ve seen over recent years – such as extra funds saved during the pandemic, fundamental changes in how people use their homes, and investment demand, still remain evident. The extremely short supply of homes for sale is also a significant long-term challenge but serves to underpin high property prices.”
Galley said house prices are likely to come under more pressure as those market tailwinds fade further and the headwinds of rising interest rates and increased living costs take a firmer hold.
“Therefore a slowing of annual house price inflation still seems the most likely scenario,” he said.
Andrew Wishart, senior property economist at Capital Economics, said: “Like Nationwide, Halifax reported that house price growth ground to a halt in July. As these house price indices are based on mortgage approvals, its possible that affordability rules put a temporary brake on prices. But equally it could be that the reversal in house price growth that we expect has already arrived.
“A further rise in mortgage rates from 2.5% in July to a peak of over 3.5% next year will cause buyer demand to deteriorate further. Based on our forecasts that a mild recession is in store, we think house prices will fall by 5%. But if the Bank of England’s bleak assessment yesterday that a deeper and more prolonged downturn is imminent proves correct, house prices will fall by more than that.”