House prices are falling year on year for the first time since 2012 as spiralling mortgage rates take a heavy toll on the property market, figures show today.
Leading lender Halifax said that its data revealed that the average price of a home in the UK was down one per cent in May compared with a year previously at £286,532.
Some of the biggest falls were recorded in London, where they dropped 1.2 per cent to an average of £536,622, and the South East of England, where they decreased 1.6 per cent to £385,943.
The Halifax index shows how dramatically the property market has turned around over the past year.
In spring and summer 2022, homeowners were enjoying double digit increases in prices as buyers went on a binge following the lifting of pandemic restrictions fuelled by still historically low mortgage rates.
However, a succession of rate hikes from the Bank of England, which has lifted the cost of borrowing from 0.1 per cent to 4.5 per cent since December 2021, has killed the momentum in the market.
Today Halifax became the latest major lender to reprice its mortgages with the rate on a two-year fix for a borrower with a 40 per cent deposit going up from 4.54 per cent to 5.36 per cent.
Kim Kinnaird, director of Halifax mortgages, said: “As expected the brief upturn we saw in the housing market in the first quarter of this year has faded, with the impact of higher interest rates feeding through to household budgets, and in particular those with fixed-rate mortgage deals coming to an end.
“With consumer price inflation remaining stubbornly high, markets are pricing in several more rate rises that would take base rate above five per cent for the first time since the start of 2008. Those expectations have led fixed mortgage rates to start rising again across the market.
“This will inevitably impact confidence in the housing market as both buyers and sellers adjust their expectations, and latest industry figures for both mortgage approvals and completed transactions show demand is cooling. Therefore further downward pressure on house prices is still expected.”
The sharpest fall in prices is for flats (-1.9 per cent), followed by terraced homes (-1.0 per cent) and semi-detached houses (-0.5 per cent).
Tom Bill, head of UK residential research at agents Knight Frank, said: “This is unlikely to be the last national house price index to fall into negative territory this year. Mortgage rates will keep edging up as wage growth keeps core inflation stubbornly high and we expect prices to fall by around five per cent this year.
“However, this isn’t the global financial crisis part two for house prices and any decline will be kept in check by rising wages, low unemployment, cash sales, record-high levels of housing equity, longer mortgages and savings amassed during the pandemic.”
