UK house prices are falling from their peak following consecutive interest rate hikes and rising mortgage rates.
The property market saw a huge spike in 2021 thanks to the temporary stamp duty holiday, which was introduced to get people buying again during the coronavirus pandemic.
But a lot has changed since then.
Inflation hit a peak of 11.1% in October 2022, largely off the back of higher energy prices and food bills, and the Bank of England has been raising interest rates to combat rising prices.
The base rate is now at 5% following thirteen consecutive rises since December 2021 with fears it could hit 6% this year.
Meanwhile, inflation is falling but more slowly than expected.
Consumer Price Index (CPI) inflation - which is used to measure the average change in price over time of goods and services - is currently at 8.7%.
All this basically means people have less money to spend and our finances are more squeezed than before inflation and rates started going up.
Another consequence of rising interest rates is that mortgage deals have become more expensive.
But what exactly is happening to house prices now, and what does this all mean if you have a mortgage?
What is happening to house prices?
There are several key house price indexes which are closely followed.
The Land Registry UK House Price Index is the most reliable as it is based on actual property sales rather than asking prices.
However, the figures are always two-months behind - which means the most recent data covers April of this year.
According to Land Registry data, the average UK house price was £286,489 in April and was up 0.5% on a monthly basis compared to March.
On a yearly level, prices went up 3.5% between April 2022 and 2023 - considerably lower than the record 14.2% yearly increase recorded in July 2022.
Here is how other house price indexes compare:
- Rightmove (June 2023 - average asking price £372,812) monthly change 0%; annual change 1.1%
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Nationwide (June 2023 - average asking price £260,736) monthly change 0.1%; annual change -3.5%
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Halifax (June 2023 - average asking price £285,932) monthly change -0.1%; annual change -2.6%
Will house prices crash?
The property market is very uncertain, so no one knows for sure what will happen to prices over the next few years.
In March this year, the Office for Budget Responsibility (OBR) predicted house prices will drop by 10% over the next two years.
At the start of this year, Santander said it was forecasting a 10% fall in 2023, while Lloyds Bank previously announced it was braced for a 7% drop and Nationwide said it expects a 5% dip.
A drop of 10% would be about half the size of the fall seen during the financial crisis of 2008 and put prices back to where they were in autumn 2021.
At the moment, analysts say the Land Registry data suggests prices are not dropping at the rate predicted earlier this year.
What do falling house prices mean for me?
When house prices fall, homeowners who are moving may find they have less money to spend if they don't get as much for their property as they expected.
This could lead to some people holding off on selling.
On the flip side, if homeowners can't afford their monthly repayments, then they may have no choice but to sell up - potentially pushing down prices.
Longer term trends also depend on whether housebuilding keeps up with demand.
For first-time buyers, falling house prices could be a good thing - although rising interest rates mean affordability will be a major issue for some borrowers.
You need to be able to prove you can afford your monthly repayments in order to be approved for a mortgage.
But as we've said, no one knows for sure what will happen to house prices over the next few months.
Latest data from HMRC shows demand from buyers has fallen over the past 12 months.
An estimated 74,360 transactions went through in May - down 25% compared to May 2022, but up 10% on the previous month.
What is happening to mortgage rates?
Mortgage rates have been steadily increasing over the last few weeks.
Latest data from Moneyfacts.com shows mortgage costs have hit the highest level for 15 years yesterday - surpassing the peak in the aftermath of the Mini-Budget.
The average rate on a two-year fixed deal has now passed 6.66% - a level not seen since August 2008 and the financial crisis.
This puts more pressure on homeowners and means first-time buyers need to able to afford higher monthly mortgage repayments if they want to get on the property ladder.
Tracker mortgages move in line with the base rate, so these have become more expensive following consecutive interest rate hikes.
Standard variable rate (SVR) mortgages normally go up too when the base rate in increased - but it is down to your lender to pass on any rises.
You'll usually be on an SVR type mortgage deal after your fix or tracker rate ends.
If you have a fixed-rate mortgage, your rate won't change while you're still in your current deal - but thousands of people coming off fixed deals are now being hammered by more expensive deals.
To put this into context, the Bank of England today said mortgage payments will rise by at least £500 a month for nearly one million households between the end of this year and 2026.
More than two million households will pay between £200 and £499 from the end of this year and the end of 2026, it warned.
Is now the right time to buy my first home?
There is no easy answer to this - it all depends on your personal circumstances and what you can afford to do.
If you do decide to take the leap, be sure to do your research first.
According to Claire Flynn, mortgage expert at Confused.com, there is still competition between lenders.
She said: "Mortgage rates have increased and are seemingly continuing to do so, but house prices have started to gradually decrease.
"As long as mortgage rates keep rising, property value should continue to fall."
"A mortgage broker will be able to help you compare mortgages available across the market and make recommendations on how long to fix for, and which type of mortgage would suit you best."
If house prices do fall drastically, some newer buyers may risk going into negative equity if prices take a long time to recover.
Negative equity is when the value of your property reduces and it is worth less than what you owe on your mortgage.
Those with low deposits are most likely to be affected, as they will have less equity in their home.
Speaking earlier this year on the Which? Money podcast, Jonathan Rolande from the National Association of Property Buyers (NAPB) said he does not believe there is a serious risk of mass negative equity this year.
He also pointed out that if prices do fall, negative equity is only relevant if you're looking to sell - not if you plan on staying put for a few years anyway.
He said: "Prices would have to drop at least 15% from their peak to see a lot of people in negative equity.
"However, many will begin to see the price they paid is higher than the current value – an uncomfortable feeling, for sure, but only relevant if you're actually trying to sell up."
