UK house prices suffered their biggest annual fall in 14 years as the seasonal summer slump and high mortgage costs weighed on sales.
Data released by Halifax, Britain’s biggest mortgage lender, showed prices fell 4.6% in August, marking the biggest one-year drop since 2009.
This means the price of a typical UK house has fallen by around £14,000 in the last 12 months to £279,569. This is the lowest level since early 2022, but it still leaves average prices £40,000 higher than before the pandemic, when lockdowns fueled demand for larger homes in a ‘space race’ “.
The latest annual decline, however, suggests that homeowners continue to be deterred by high interest rates, which have been raised by policymakers in an attempt to combat inflation but have fueled rising mortgage costs.
The Bank of England has increased interest rates 14 times since December 2021 to 5.25%, pushing the average two-year fixed rate mortgage rate to around 6.67%, according to the latest figures from Moneyfacts.
Kim Kinnaird, director of Halifax Mortgages, said the traditional slowdown in home buying over the summer months also played a role in last month’s slump. “Market activity levels slowed in August, and while there is always a seasonal effect at this time of year, this is not surprising given the pace of mortgage rate increases in June and July.
“Even though these rates have eased in the last month, the rates remain much higher than in recent years. This may well have prompted potential buyers to postpone trades in hopes of some stability and greater clarity on the future direction of rates in the months ahead.
“The market will continue to rebalance until it finds an equilibrium where buyers are comfortable with higher mortgage costs than seen in the previous 15 years,” Kinnaird said.
Halifax expects house prices to fall further in the new year, and while this trend is unlikely to be welcomed by current owners, Kinnaird said it could be a relief for those hoping access the real estate ladder, which have more purchases. power thanks to rising wages.
“Income growth has remained strong in recent months, which has seen the house price-to-income ratio for first-time buyers fall from a high of 5.8 in June last year to 5, 1 today. This is the most affordable level since June 2020 and will partially offset the impact of rising mortgage costs,” Kinnaird said.
Andrew Bailey, governor of the Bank of England, said on Thursday that British interest rates were we are approaching the summit, suggesting that the cycle of rate hikes may soon end. The Bank is, however, expected to raise its rates again at its next policy meeting on September 21, by a quarter of a point, to 5.5%.