UK house prices experienced their biggest annual fall in 12 years, according to Halifax, the latest sign that soaring interest rates on mortgages is bringing a halt to the housing boom.
The average price of a UK home tumbled 2.6% year on year last month, the largest annual decrease the lender has reported since June 2011, a significant acceleration from the 1.1% decline record in May.
Up until May, Halifax – which said that the average house price fell by 0.1% in June, the third consecutive monthly decline – had not reported a year-on-year fall in UK house prices since December 2012. The average price of a home in the UK is now £285,932, £8,000 lower than the peak last August according to the lender.
“The housing market remains sensitive to volatility in borrowing costs,” said Kim Kinnaird, the director of Halifax Mortgages. “Concerns about persistent inflation have led to a significant increase in the cost of funding. The resulting squeeze on affordability will inevitably act as a brake on demand, as buyers consider what they can realistically afford to offer.
“How deep or persistent the downturn in house prices will be remains hard to predict. With markets now forecasting a peak in Bank Rate of over 6%, the likelihood is that mortgage rates will remain higher for longer, and the squeeze on household finances will continue to put downward pressure on house prices over the coming year.”
Two-year fixed-rate mortgage rates have continued to climb past 6% after the Bank of England increased interest rates by half a point to 5% in June in an attempt to curb stubbornly high inflation.
“This slow puncture softening in house prices reinforces the message from other recent surveys that financial markets pricing in further interest rate increases is not helping buyer confidence,” said Jeremy Leaf, a north London estate agent and a former residential chair of the Royal Institution of Chartered Surveyors.
“On the ground, sales are still proceeding, often to those who are not dependent on mortgage finance, but they are taking longer and often involve protracted renegotiations resulting in modest rather than large, price falls.”
Halifax said that despite recording the third consecutive monthly fall in house prices, they remain up 1.5% since the beginning of 2023 because of growth in the first quarter.
Kinnaird said that the figures showed a “degree of stability in the face of economic uncertainty”, with the volume of mortgage applications “holding up well” in June.
However, signs of the increasingly faltering housing market in the short-term were highlighted by the latest HM Revenue and Customs figures, which showed home sales fell by 27% year on year in May.
There were 80,020 completed transactions in May, a 3% drop on April, according to a HMRC release on Friday. The report said the decline was partly down to extra bank holidays last month but also pointed to a “decline in general market conditions in recent months”.
Figures from the low-cost housebuilder MJ Gleeson also underscored the market slowdown as house sales slumped more than a fifth year on year in the six months to the end of June.
While the company said that house prices remained “resilient”, the average price increased 11.3% to £167,300 during the year, and it noted a “significant shift” in buyer demographics in recent months.
In the first half of this year the proportion of first-time buyers slumped from 71% in the same period last year to about 50%. Meanwhile, the proportion of buyers over 55 doubled from 10% to a fifth of all sales.
Overall, MJ Gleeson’s annual house sales dropped from 2,000 in its last financial year to 1,723 in the year to the end of June.
