UK house prices fall for fifth consecutive month

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UK house prices fell for the fifth consecutive month and at the fastest annual pace since 2009 as higher mortgage rates hit prospective buyers, according to mortgage provider Halifax.

Property prices fell 4.6 per cent in August compared with the same month last year, when prices reached a record peak, and is the largest contraction since 2009, according to data released on Thursday.

Prices declined 1.9 per cent between July and August, following consecutive monthly drops since April, Halifax said.

The typical UK home now costs £279,569, down by about £14,000 over the past year, but about £40,000 above pre-pandemic levels.

Ranald Mitchell, director of Norwich-based independent mortgage broker Charwin Private Clients, said: “The effects of the increases in borrowing costs are now very apparent, with property sales harder to achieve and sellers being tempted by lower offers so they can move on.” He expects the rest of the year to “follow this pattern until consumer confidence in mortgage pricing returns”.

The drop was larger than the monthly fall of 0.3 per cent and an annual contraction of 3.45 per cent forecast by economists polled by Reuters.

Kim Kinnaird, director at Halifax Mortgages, said house prices “have proven more resilient than expected so far this year, despite higher interest rates weighing on buyer demand”.

“However, there is always a lag effect where rate increases are concerned, and we may now be seeing a greater impact from higher mortgage costs flowing through to house prices,” she added.

Imogen Pattison, economists at Capital Economics, expects that mortgage rates will remain around current levels of 5.5 per cent to 6 per cent for the next year, which means “demand will remain weak which we think will cause a further 5.5 per cent drop in house prices”.

Mortgage rates have fluctuated at historically high levels in the latest months reflecting changing medium-term expectations on how much the Bank of England will increase interest rates. The BoE rate has increased from a record low of 0.1 per cent in November 2021 to the current 5.25 per cent. Markets expect another interest rate increase later this month.

Kinnaird thinks the fluctuations in rates could have prompted prospective buyers to defer transactions in the hope of some stability, and greater clarity on the future direction of rates in the coming months.

All UK nations and the nine English regions registered an annual decline in house prices in August, with northern locations generally proving to be more resilient than areas in the south, according to Halifax.

The South East was the worst-performing region with property prices falling by an annual rate of 5 per cent. The largest average annual drop in price in cash terms was in London, down £22,800.

Wales, which recorded some of the biggest gains in property prices during the pandemic-driven race for space, has seen property prices fall 4.7 per cent over the past year.

In contrast, in Scotland property prices fell just 0.6 per cent over the past year, the slowest pace of decline in the UK.

Earlier in the month, the mortgage provider Nationwide reported UK house prices falling at an annual pace of 5.3 per cent in August, the sharpest fall since 2009. 

“The fall in both the Halifax and Nationwide house price indices in August is unlikely to be the last,” said Pattison.