House prices registered a slight dip for the third consecutive month in June, reflecting a cooling housing market in response to increasing interest rates.
According to Halifax Mortgages, the average house price saw a 0.1% decline, translating to approximately £300, and the annual rate of house price growth dropped to -2.6%, from -1.1% in May.
As a result, a typical UK property now costs £285,932, down from the peak of £293,992 last August.
Kim Kinnaird, director at Halifax Mortgages, noted that this rate of decline largely stems from the impact of the historically high house prices last summer and suggested a degree of stability despite economic uncertainty. She added: “The volume of mortgage applications held up well throughout June, particularly from first-time buyers. However, the housing market remains sensitive to volatility in borrowing costs.”
Kinnaird further explained that inflation concerns have led to a significant increase in the cost of funding, and together with a rise in the base rate, they have resulted in a surge in typical mortgage rates over the last month. This situation exerts a squeeze on affordability, acting as a deterrent to demand, as buyers reconsider what they can realistically afford to offer.
The new Mortgage Charter offers some reassurance to mortgage holders concerned about repayments, with lenders promising flexibility in supporting those facing difficulty. Alternative options include extended terms, affordable repayment plans, and alternative fixed-rate deals.
Predicting the persistence or depth of the downturn in house prices is challenging due to factors such as consumer price inflation and core inflation proving stickier than expected. “With markets now forecasting a peak in Bank Rate of over 6%, 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,” Kinnaird said.
The recent figures suggest some resilience in new build property prices, showing a 1.9% annual rise. However, the rate of growth has slowed to its lowest level in more than three years. Existing properties, which primarily drove the price rise during the pandemic-related housing rush, recorded a -3.5% year-on-year decline in June, the steepest since August 2009.
In terms of regions, the South of England faced the most pressure, with the South East experiencing a -3.0% annual fall, the largest since July 2011. London recorded an annual decline of -2.6%, its weakest performance since October 2009. Meanwhile, house prices in Wales and Scotland saw a drop of -1.8% and -0.1% respectively. However, the West Midlands, Yorkshire & Humberside, and Northern Ireland witnessed marginal gains.
Reaction
Nathan Emerson is CEO of Propertymark:
“It is inevitable that people’s finances are going to be impacted by rising interest rates, and there is a higher chance of a fall through in a sale due to the changes in buyers’ finances.
“However, serious buyers and sellers are rightly putting their confidence in the market and the majority are successfully and affordably moving home. Negotiations being made on properties are allowing wiggle room and bringing down the overall cost from the pandemic house price boom which was desperately needed as they were previously unrealistic and unsustainable.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“As mortgage rates continue to rise, there is 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.
“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.
“Borrowers should 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.”
Alex Lyle, director of Richmond estate agency Antony Roberts:
“There has been a noticeable shift in pricing compared with a year ago as the depth of demand from buyers isn’t the same and the balance of power has shifted more towards those keen to purchase. An ultra-ambitious price a year ago could well have been achieved but now that property could stick.
“That said, there is still lots of activity in the market and a fair amount of stock under offer, although chains are long and some deals are taking longer to go through than any parties would wish.
“Those buyers who have been looking for an excuse to delay their purchase and wait until we have a clearer understanding of where rates are headed, are now doing so. Some vendors are taking a similar approach, sitting tight and waiting until the autumn in the hope that things will have settled down by then.”
Anna Clare Harper, CEO of GreenResi:
“The average house price was £285,932, down 2.6% according to Halifax, which is partly a market correction. Housing policy has focused on the needs of homeowners, and on debt to fund new supply, for a long time. With higher interest rates, price growth is being corrected. However, describing a shift in the market affecting millions of people as a ‘market correction’ misses the point.
“We need to look beyond aggregated property prices at a point in time and consider the environmental and social realities and implications, just as professional investors are increasingly required by regulations to monitor and report on their Environmental Social and Governance (ESG) credentials, which in turn affect prices and values.
“To meet Zero 2050, we must retrofit (improve the energy efficiency of an existing building) one home every two minutes. The price of homes that are not upgraded will fall relative to others, in particular in the rental market.
“To save ‘Generation Rent’ from homelessness, we must stem the exodus of landlords by allocating professional capital to existing private rental sector homes. Homes which can be, and are, rented out will be more valuable than low quality, low energy efficiency homes no longer considered fit for use under the planned Decent Homes Standard.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“This slow puncture softening in house prices reinforces the message from other recent surveys that financial markets pricing in further interest rate increases is not helping buyer confidence.
“However, these figures are a little dated so don’t yet fully reflect the recent sharp increases in mortgage payments.
“On the ground, sales are still proceeding often to those who are not dependent on mortgage finance but they are taking longer and often involve protracted renegotiations resulting in modest, rather than large, price falls.”
Adam Smith, Founder at Northampton-based Alfa Mortgages:
“As the Halifax observes, the immense strain being put on people’s finances will almost certainly send prices lower during the months ahead. Inflation is proving extremely stubborn and the base rate is now expected to peak far higher than we thought a couple of months ago.
“However, the housing market could still experience a correction rather than a crash during the next 12 months due to the lack of supply and strength of the jobs market. Curiously, June and July to date have seen positive demand, especially from first-time buyers who are enthusiastically diving in and seizing attractive deals as asking prices edge down. Sellers can no longer deny the harsh interest rate environment we now find ourselves in.
“As rates rise further, a growing number of forced sales are now likely. Much will depend on whether borrowers were already stretching their affordability limits when they secured their mortgages at historically low rates of 1% or 2%. The outcome will largely depend on these individual circumstances and their particular level of financial strain.”
John Choong, market and equity analyst at InvestingReviews.co.uk:
“With the average fixed mortgage rate now firmly above 6%, the housing market should brace for an onslaught. This is especially the case in the South of England, which is under the most pressure. Household incomes are getting squeezed by the month due to Andrew Bailey’s complacency and incompetence.
“With a terminal rate of 7% rate now being priced in, mortgage rates could skyrocket to 8% or higher, potentially triggering a crash in the housing market. One of the few positives is that the unemployment levels remain low while the household savings ratio remains above pre-pandemic levels.
“More importantly, over 70% of mortgages are held by the UK’s top 40% of earners, thereby making defaults less likely. If inflation continues to remain sticky for the foreseeable future, the rapid tightening of monetary policy could trigger a recession, leading to higher unemployment and a bloodbath in the housing market.”
Kate Allen, founder at Devon-based luxury lettings company, Finest Stays:
“Though house prices fell only modestly in June, the trajectory is now almost certainly down, at least during the rest of 2023. Much will depend on the inflation data this month, as core inflation is currently extremely sticky.
“As interest rates rise ever higher, the surge in the number of holiday homes coming onto the market in the South Hams, with most priced below the £1m mark, is hard to miss. The bitter taste of remortgaging at today’s rates is proving enough to make even the wealthier people out there want to ditch the debt. Asking prices for good properties in prime locations remain firm but overall it’s without doubt a buyers’ market now.”
Peter Dockar, chief commercial officer at fintech residential mortgage lender, Gen H:
“The one thing that the government and lenders don’t want to say in public is that, for some families, the only sustainable way through this interest rate crisis is to sell their homes. It isn’t what anyone wants to hear, but if a homeowner can’t afford 6% rates today and they don’t believe their circumstances will change significantly for the better over the next six to 12 months, it may be wise to use the Mortgage Charter’s credit file protections to prepare the home and sell. That, sadly, is the reality we’re in.”
Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages:
“If things carry on as they are, there’s only one word that portrays the outlook for the UK economy, its housing market and the mortgage industry: disastrous. The labour market currently has a crucial influence on the UK’s interest rates. Even as we pray for a drop in CPI inflation, the Bank of England equally desires a reduction in wage inflation. This may coincide with a surge in unemployment if the economy stalls.”
Kundan Bhaduri, director of London-based property developer and portfolio landlord, The Kushman Group:
“As mortgage rates increase, homeowners on ultra-low fixed rates will face challenges when transitioning to new rates this year. This will lead to a rise in forced sales and, in some cases, repossessions.
“The housing market’s lack of supply and new housing developments have been an ongoing issue as we know. This scarcity will give some resilience to house prices during these turbulent times but higher interest rates counteract those issues.
“The job market plays a vital role in supporting house prices. Stable employment and income levels provide confidence to buyers and help sustain demand in the housing market. Uncertainty of the nature that exists today requires landlords and home buyers to take a careful view of market dynamics and to be adaptable to these changing conditions.”
Alastair Hoyne, CEO at London-based Finanze Group:
“I think the question is not whether the housing market will see a correction, but rather how quickly prices fall. According to estimates from the Nationwide, the average house price has fallen by 3.5% in the year to June 2023.
“Although upward pressure from a tight supply of UK housing has helped to slow the drop in property values, more and more homeowners will now feel the pinch of rate increases as they attempt to refinance their current facilities.
“The average 5-year fixed rate is now sat at over 6%, a level not seen since the fallout from the mini-Budget in November 2022. We anticipate two further 25 basis point hikes in September and November, raising the base rate to 6%. Our prediction for an 11% decline in residential house prices over 2023 doesn’t now seem so far away. With inflation remaining high, at 8.7% for May 2023, the city is now preparing for a base rate peak of 6.25%.”
Paul Welch, CEO at London-based LargeMortgageLoans.com:
“I think we’re still a long way off a housing market crash. Good properties in attractive locations will always sell. Houses may stay on the market a little longer than before and owners may need to review the price, but chances are that if it’s a sound property in a solid location, then it will sell.
“The core inflation data needs to be watched very carefully this month because, if it has risen again or remains stubbornly high, rates will continue to increase and we could see mortgage rates hit 7% before long.
“This will inevitably have an impact on people’s ability to borrow and curtail how much they can afford to borrow, which could lead to people having to sell their homes and downsize, or even move to a different area of the country where their money will go further. With more and more of us opting to work from home these days, this is a distinct possibility for many.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services:
“June was a busier month than we anticipated. However, there was a noticeable switch from new purchases to clients wanting to remortgage and many looking to consolidate debts. There will undoubtedly be a number of forced sales as some people roll off ultra-low fixed rates to see their mortgage payments, in some cases, almost double.
“We have to hope that the inflation data in August will be a significant step in the right direction to alleviate the pressure that’s building in the mortgage market. If rates continue to rise, we could easily see house price falls between 10%-15% from their peak last August.
“While that would not be considered a crash by any stretch, many people consider the value of their home intrinsic to their overall prosperity and, as such, this would knock consumer spending further, possibly precipitating a recession.”
Rhys Schofield, managing director at Derbyshire-based mortgage advisers, Peak Mortgages and Protection:
“Against a turbulent backdrop, June was just about our best ever month for mortgage numbers. It’s busy and people still need to buy and sell houses for all the reasons they’ve always had to buy and sell houses.
“Yes, we are transitioning to a buyers’ market but well priced stock is shifting and the latest asking price stats point towards no material change in June. Don’t forget that we don’t have enough houses, we don’t build enough houses and the UK population is ever growing. We’re a heck of a long way off of supply keeping up with demand so a full blown crash is really unlikely. Equally, you may not see much growth either.”
Ranald Mitchell, director of Norwich-based independent mortgage broker, Charwin Private Clients:
“Asking prices are likely to drop over the coming months as many will choose to sell up rather than suffer the increased cost of home ownership. That said, demand and sales, whilst down on last year, remain 48% higher than pre-pandemic levels, the last “normal” market.
“There will be a growing number of forced sales, particularly among the more vulnerable and already struggling mortgage prisoners, as surging rates tip them over the edge. June has been strong, with plenty of activity.
“This has mainly been remortgaging rather than purchases, with many looking for guidance on product selection. The jobs market remains robust, with a recent spike in vacancies showing that companies are gearing up for stronger activity, and unemployment remaining low. This is bad news for inflation. It is only a matter of time before companies start to feel the interest rate pinch and embark on the inevitable cost-cutting.”
Ross McMillan, owner at Glasgow-based Blue Fish Mortgage Solutions:
“There is now no question that sentiment in the housing market has taken a significant negative turn and it seems inevitable that the second half of 2023 will see this reflected in market activity and subdued prices.
“With the attempt to hit notional inflation targets from current highs the sole focus of the UK Government and Bank of England — at the expense, and to the detriment, of every other consideration — tough times lie ahead. Acknowledgement that raising interest rates exclusively has failed to address rising inflation and some respite from the bludgeoning of mortgage holders to allow measures already taken to be properly assessed would be welcomed.
“In Scotland, with the school summer holidays now in full swing, the volume of purchase enquiries is noticeably down but at this stage it’s uncertain whether that can be attributed to the usual seasonal trends or current economic volatility.”
Nicky Stevenson, managing director at national estate agent group Fine & Country:
She said: “Mortgage rate rises are hitting buyer affordability and cooling house price growth as a result — but sensibly priced properties continue to attract high demand.
“Despite recent fluctuations in the average house price, overall prices are still up £4,000 over the year so far, which points to the resilience of the market even during tougher economic conditions.
“Buyer interest remains broadly on a par with 2019, which was a fairly typical year for the property market compared to the frenzy that followed, and demand continues to outpace supply in many places.
“The homes attracting the most interest and offers are those that look reasonably priced and take account of reduced household buying power.
“Buyers are also looking at properties where there is scope for negotiation, and the prospect of securing a good price on their next home is incentivising them to the market.
“The agreement between the banks and Government that struggling mortgage-holders will be supported will play a big role in underpinning the strength of the housing market in the coming months. Preventing forced-selling and repossessions, combined with a strong labour market, should help give the property market a soft landing.”
James Briggs, head of personal finance intermediary sales at Together:
“House prices fell by 0.1% in June, backing wider reports of the UK’s falling position among global property house price growth this year. While the market is under pressure and there will undoubtedly be regional corrections, we are far from a crash.
“With the next update on inflation figures due this month, customer awareness of mortgage costs and the impact of high repayments is at an all-time high. Those with mortgages longer than 12 months are currently experiencing a significant payment shock and sadly, the market just won’t swing in their favour for the most part of this year.
“However, that isn’t to say all activity is ceasing to exist. For those in a position to buy, whether for residential or non-residential properties – now is the time to strike and take advantage of bottom rate prices. At Together, we’re already seeing a significant uptake for short-term bridging loans and second charge as more people look to maximise opportunities and ensure their money is working its hardest.”
Vikki Jefferies, proposition director at PRIMIS:
“The latest figures from the Halifax House Price Index reflect reduced buyer confidence in the market, as mortgage rates continue to rise amidst new expectations that the Bank of England’s base rate could reach 6% before Christmas. While hesitancy from borrowers is to be expected in such circumstances, it is worth bearing in mind that house prices still remain above pre-pandemic levels.
“In an environment like this, professional mortgage advice is more important than ever. In particular, brokers should look to secure their customers an offer that suits them as quickly and efficiently as possible in order to keep up with an extremely dynamic market.
“Advisers may also find that they are beginning to talk to customers much earlier in the lending process, as they seek advice sooner due to concerns about future lending options. While this will add to the number of interactions a broker will have, it also presents more opportunities for brokers to fully educate customers on available products and the importance of protection cover.”
Emma Hollingworth, managing director of mortgages at MPowered Mortgages:
“With interest rates at their highest level since 2008, and likely to rise further towards the end of the year, today’s figures reflect decreased buyer confidence in the market. Understandably, the latest upheaval in mortgage rates over the past few weeks has resulted in uncertainty for borrowers, particularly with the number of product withdrawals that have had to be made at short notice.
“At MPowered, we recognise the vital role brokers play in guiding consumers and, as a lender, will always endeavour to support brokers by offering as much notice on product withdrawals as possible. Additionally, using our AI-enabled solutions, we automate some of the more time-consuming parts of the mortgage journey, giving brokers more time to do what they do best: advising their customers.
“For borrowers, we always aim to keep our products as competitively priced as possible, and pride ourselves on offering both the best service and products which meet the needs of our customers in this fast-changing marketplace.”
Nick Mendes, mortgage technical manager, John Charcol:
“The property market had so far been resilient in riding the wave of constant pressure and overcoming early predictions of a significant house price crash. The latest Halifax report though shows the tide may have finally turned and the early predictions of a property price decrease now showing early signs of what many had predicted.
“The last few weeks of mortgage turmoil are certainly going to add to future pressure, higher mortgage rates have seen home movers and first-time buyers adjust their requirements as borrowing has become 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 inevitably be better off in the long term.”
