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Annual house prices report largest fall since 2011 – Halifax

  • 07/07/2023
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Annual house prices report largest fall since 2011 – Halifax
Annual house price growth contracted by 2.6 per cent in June, the second consecutive month of decreases and more than double the previous month’s figures, a report has found.

According to Halifax’s House Price Index, this is the largest year-on-year decrease since June 2011 and is equivalent to a £7,500 drop.

The report continued that the typical UK property is £285,932, which compares to a peak of £293,992 last August.

Average house prices decreased by 0.1 per cent in June month-on-month, which is the third consecutive monthly decline.

Kim Kinnaird, director of Halifax Mortgages, said: “With very little movement in house prices over recent months, this rate of decline largely reflects the impact of historically high house prices last summer – annual growth peaked at plus 12.5 per cent in June 2022 – supported by the temporary Stamp Duty cut.”

She continued that to some extent the annual house price figure “masks the fluctuations” seen in the market over the last year.

Kinnaird said that average house prices were up 1.5 per cent, or £4,000, this year. Most of the growth come from the first quarter following the sharp fall after the mini Budget at the end of the year.

“These latest figures do suggest a degree of stability in the face of economic uncertainty, and the volume of mortgage applications held up well throughout June, particularly from first-time buyers.

“That said the housing market remains sensitive to volatility in borrowing costs. Concerns about persistent inflation have led to a significant increase in the cost of funding. Coupled with base rate rising by another 50bp, this contributed to a big jump in typical mortgage rates over the last month,” she explained.


Affordability squeeze will ‘act as a brake on demand’

Kinnaird said that the “resulting squeeze on affordability will inevitably act as a brake on demand” as buyers reconsider what they “realistically can afford to offer”.

“While there’s always a lag effect when rates go up, many existing mortgage holders with variable deals or rolling off fixed rates will likely face an increase in the next year,” she added.

Kinnaird said that the mortgage charter offers “reassurance that mortgage holders have a range of options if they’re concerned about making repayments, and that lenders will be flexible when supporting anyone in difficulty”.

She continued that the depth and the persistence of house price downturn “remains hard to predict”, but it was likely that consumer price inflation would come down in the near term as energy and food prices reverse steep rises.

However, Kinnaird said that core inflation was “clearly proving stickier than originally expected”.

“With markets now forecasting a peak in bank rate of over six per cent, 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,” she added.


New build sector showing ‘resilience’

Halifax said that new build property prices were up 1.9 per cent annually, which it said suggested “resilience” in the sector.

However, it said that the rate of growth had continued to slow and had dropped to its lowest level for three years.

Existing properties were down 3.5 per cent year-on-year in June, which is the steepest decline since August 2009.

Flats decreased 3.1 per cent year-on-year, followed by terraced homes at negative 2.5 per cent, with semi-detached and detached homes down 1.9 per cent and 1.3 per cent respectively.


South of England reporting biggest ‘downward pressure’

House prices in the South of England faced the largest “downward pressure” in prices at a three per cent fall year-on-year, which is the largest since 2011.

This was followed by London at negative 2.6 per cent and the South West and East Midlands at minus 2.1 per cent apiece.

The West Midlands reports a 1.5 per cent annual uptick, with Yorkshire and the Humber reporting a 0.2 per cent annual rise.

Northern Ireland house prices rose by 0.2 per cent year-on-year, with Welsh house prices contracting by 1.8 per cent Scotland falling 0.1 per cent year-on-year.


Mortgage turmoil will ‘add to future pressure’

Nicholas Mendes, mortgage technical director at John Charcol, said that the property market had been resilient so far in “riding the wave of constant pressure and overcoming early predictions of a significant house price crash”.

However, he said that this latest report may show that the “tide may have finally turned and the early predictions of a property price decrease now showing early signs of what many had predicted”.

Mendes said that the last few weeks of mortgage turmoil were going to “add to future pressure” with homemovers and first-time buyers adjusting the requirements as borrowing becomes more expensive.

“While it is custom to list the property price higher to test the market and see what bids you may attract, sellers will need to be in tune with market conditions and try to compare this year to previous.

“For buyers, if the price is right and the mortgage is affordable no time is better than the present. It’s impossible to second guess when property prices will bottom out and when rates will come down to coincide at the same time. Property is a long-term investment and history shows you will inevitable be better off in the long term,” he explained.


‘Market is keeping a stiff upper lip’

Tomer Aboody, director of property lender MT Finance, said whilst there had been a fall in demand and pricing, this was “far from the expected or predicted downward trend”.

“The sentiment is that the market is keeping a stiff upper lip, with buyers and sellers still out there, making the impact less volatile,” he noted.

Aboody said that continued interest rate rises were impacting buyers and people were waiting to see where the “new norm settles” but the market was not “seeing the ‘crash” that many expected.

He explained that this was because “proportionately very few people are being affected by the rate hikes, since most are currently on fixed mortgages”.

Aboody added: “Maybe it’s time for the Bank of England to let the market breathe and see how the rate increases actually make an impact before continuing to choke it.”


‘Growing appetite’ for shorter-term fixes and penalty-free trackers

Mark Harris, chief executive of mortgage broker SPF Private Clients, said that as mortgage rates continued to rise there was “growing appetite from borrowers for shorter-term fixes and penalty-free trackers in the hope that this volatility in the market will be relatively short-lived”.

He continued: “It is no surprise that this is having a knock-on effect on house price growth as there is only so much borrowers relying on mortgages are able to pay, particularly those requiring relatively high loan to values.

“Those with more equity in their homes, who have benefited from low mortgage rates over the past few years, will be able to cope better perhaps with the new norm of higher rates but must still adapt accordingly by tightening their belts.”

He urged borrowers to seek advice, ideally several months before they come to the end of their mortgage deal to “ensure they are not paying more than they need to”.

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