House prices fell at their fastest rate since the financial crisis in August, according to the latest house price index from Halifax, the UK’s largest mortgage lender.
Prices dropped by 4.6 per cent last month compared with the same month a year ago. That is the biggest year-on-year drop that Halifax has recorded since summer 2009, echoing Nationwide’s price index last week.
The average house price in the UK is now 279,569, £14,000 below the peak in September 2022 and back to where it was at the start of last year.
On Halifax’s measure, prices have now fallen for five consecutive months, having retreated 1.9 per cent in August. That was much worse than both the 0.3 per cent dip that economists had predicted and the 0.4 per cent fall recorded in July.
August’s month-on-month decline was the steepest since last November, when the housing market was still feeling the shocks from the mini-budget.
Kim Kinnaird, Halifax’s director of mortgages, said: “Market activity levels slowed during August and while there is always a seasonality effect at this time of year it also isn’t surprising given the pace of mortgage rate increases over June and July.
“This may well 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.”
David Thomas, chief executive of Barratt Developments, one of Britain’s biggest housebuilders, said yesterday that would-be buyers, especially first-time buyers, were “pushing their decisions down the road”.
The mini-budget last September caused chaos in the bond markets and led to borrowing costs, including mortgages, spiralling rapidly and developers and estate agents saw an immediate drop in demand. As mortgage rates started to ease in the opening months of 2023 there was a brief improvement in the market this spring, but that had faded by the start of the summer as strong inflation data led to another round of mortgage rate rises.
“It’s fair to say that house prices have proven more resilient than expected so far this year, despite higher interest rates weighing on buyer demand,” Kinnaird said.
“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.”
Prices are falling in every region, but in the southeast of England, where homes are dearest, they are under the most pressure, down 5 per cent over the past 12 months. In Scotland, by contrast, prices are only 0.6 per cent below where they were this time last year.
Kinnaird expects “further downward pressure on property prices”, as do economists. Prices have fallen by about 5 per cent from their peak last September and Imogen Pattison, assistant economist at Capital Economics, thinks they are likely to fall by another 5.5 per cent.
“High mortgage rates will mean demand remains very weak while previously tight supply of second-hand homes on the market is easing,” she said. “As a result, we anticipate house prices to continue to drop until mid-2024.”
Such was the competitiveness of the housing market over the pandemic — with the “race for space”, lockdown savings and stamp duty holidays — that even after the recent wobble the average house price is still £40,000 above pre-covid levels. That wobble has helped to improve the affordability of houses, though. The house price-to-income ratio for first-time buyers has dropped from a peak of 5.8 times last summer to 5.1 times, the most affordable level since June 2020.