August saw UK house prices drop by 1.9%, the largest monthly decline since November 2022, according to the latest data from Halifax. On an annual basis, property prices have fallen by 4.6%, a sharp increase from the 2.5% drop recorded in July. The typical UK home now costs £279,569, a reduction of around £14,000 over the past year.
Kim Kinnaird, director of Halifax Mortgages, said: “UK house prices fell again in August, with the monthly drop of -1.9% the steepest since last November, following a period of relative stability. On an annual basis, prices fell by -4.6%, the biggest year-on-year decrease since 2009. However, it’s important to note that this is relative to the record-high property prices seen last summer.”
Kinnaird added that the market is beginning to feel the effects of higher mortgage rates, which had been increasing over June and July. “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,” she said.
The southern regions of England and Wales are experiencing the most significant downward pressure on property prices, while Scotland shows greater resilience. In the South East, house prices have fallen by 5.0% on an annual basis, with an average house price of £379,565. Wales has seen a 4.7% decrease in property prices over the last year, with the average house price now standing at £212,967.
In contrast, Scotland recorded the slowest pace of decline in the UK, with property prices falling by just 0.6% over the last year, marking an average house price of £201,932.
Kinnaird also highlighted that the average house prices still remain £40,000 higher than pre-pandemic levels. “Income growth has remained strong over recent months, which has seen the house price to income ratio for first-time buyers fall from a peak of 5.8 in June last year to now 5.1. This is the most affordable level since June 2020, and will be partially offsetting the impact of higher mortgage costs,” she explained.
London continues to be the most expensive area in the UK to purchase a home, despite a 4.1% drop in property prices over the last year, bringing the average property price to £529,814.
Reaction
Charles Breen, director of Wellingborough-based mortgage broker, Montgomery Financial:
“The impact higher mortgage rates are having on the property market is now crystal clear. This was a seasonal lull and then some. However, during the past few years, we have been spoilt by how busy the market has been and have forgotten how traditionally quiet August is.
“In our experience, the market simply returned to its seasonal ebb and flow last month. When speaking to prospective buyers, they are all displaying greater confidence in the market and believe that the worst is over. With the number of houses on the market broadly similar to the number of houses that were on the market in 2017, it’s not as depressed a market as some are making it out to be and there are already signs of green shoots appearing.
“We expect interest rates to stabilise during the final quarter of the year, which should give buyers more confidence and boost purchase activity well into the start of next year. We have already seen an uptick in enquiries for purchases, especially among first-time buyers who have adjusted their budgets after the rate shocks of the past year.”
Ross McMillan, owner at Glasgow-based Blue Fish Mortgage Solutions:
“The Scottish property market is definitely displaying more resilience than other areas of the UK. With Scottish schools back earlier than in England, August was a busy month with a fair amount of new enquiries, predominantly from first-time buyers.
“Properties priced at £250k and below are generally performing very well, and offers above home report valuation remain the norm. The middle to higher end of the market, however, is stagnant at best and buy-to-let purchase activity is virtually non-existent.
“Another rate rise from the Monetary Policy Committee seems inevitable but the market has already priced this in and it seems like a period of rate stability from lenders is most likely for the final quarter of the year.”
Rohit Kohli, director at Romsey-based mortgage broker, The Mortgage Stop:
“Based on this evidence, buyers are a long way from being comfortable with mortgage costs and house prices are suffering as a result.We had a relatively busy August with enquiries but plenty of people are playing the waiting game, waiting for prices to tumble even further.
“Many buyers are choosing to sit on the sidelines for now, despite the fact lenders have been reducing rates in recent weeks. This could become a self-fulfilling prophecy if buyers continue to hold off and sellers become desperate to sell. We’re sat on an economic cliff edge and the Bank of England needs to tread extremely carefully with its next rate decision.
“The best case scenario is for Threadneedle Street to leave rates on hold but I fear, having acted too slowly to begin with, it may risk over-compensating for this by pushing harder on interest rates to bring inflation to heel.”
Ranald Mitchell, director of Norwich-based independent mortgage broker, Charwin Private Clients:
“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. The remainder of the year will probably follow this pattern until consumer confidence in mortgage pricing returns.
“Mortgage rates are continuing to slowly decrease week by week so a lot of attention will be paid to how lenders react and price when the Monetary Policy Committee inevitably increases the base rate again at this month’s meeting.”
Stephen Perkins, managing director at Norwich-based Yellow Brick Mortgages:
“House prices falling as much as they have been has not been enough to stop housing market activity dropping below the normal seasonal lull. This August has been the slowest for a long time and that is evident in the 1.9% drop in prices.
“However, with mortgage rates continuing to reduce as lenders all fight it out for market share, hope still remains for a recovery. Also, as the Halifax observes, falling house prices are a positive for first-time buyers. Whilst a hold on the base rate would be very welcome, it is almost certain that the Bank of England will raise Bank Rate again at the next review meeting later this month.”
Darryl Dhoffer, founder of Bedford-based The Mortgage Expert:
“All was very quiet on the property and mortgage market front during August, although we have seen some signs of life during September to date. It’s therefore possible activity levels may tick up during the remainder of 2023. What’s now very clear is that people are making purchase decisions with their wallets and heads rather than their hearts.
“Until the base rate handbrake is pulled by the Bank of England, it’s hard to see much more enthusiasm from would-be buyers. Sadly, the indications are that this will not be the case come 21st September and another increase in the base rate is likely.”
Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages:
“This August was profoundly quiet, and probably one of the quietest I can recall. Although there’s been a minor buzz in activity recently as kids have gone back to school, there are no significant waves in the market. It’s comforting to note that some ex-Monetary Policy Committee members have alluded to a ’cause for pause’ with rate hikes.
“However, we’re probably not going to avoid at least one more rate increase before 2023 concludes. Even so, consistent house price drops could spur activity, even in a high interest rate scenario as lenders are cutting margins and loosening their criteria to stimulate the market and secure business.
“The property chains that are often in place remain worrisome, with many on a knife-edge. Even developers are accepting more part-exchanges to stimulate sales amid the ongoing slowdown. In reality, we are all at the mercy of the Bank of England whose track record to date has been questionable at best.”
Kundan Bhaduri, director of London-based property developer and portfolio landlord, The Kushman Group:
“The market has experienced tremendous growth in recent years, with record-high average property prices in August 2022. Such rapid house price appreciation was unsustainable in the long run.
“The softening in prices in 2023 should be seen, in part, as a return to more reasonable and sustainable levels. Also, remember that August typically witnesses a seasonal lull in the housing market. People are on vacation, schools are out and for many buying or selling homes is not a top priority. For the rest of 2023, we expect mortgage rates to gradually edge down even further, which could boost demand. However, affordability remains a concern.
“Despite the challenges, the market has displayed resilience, particularly among first-time buyers who are adapting by seeking smaller, more affordable homes. Prices will continue to soften, but I don’t foresee a precipitous decline. Gradual adjustments like the ones we’ve seen are more likely. It’s worth noting that, even with these declines, prices remain well above pre-pandemic levels.”
Gary Bush, financial adviser at the Potters Bar-based MortgageShop.com:
“August for us was busy in what is supposed to be the summer holiday slowdown. We cover the whole of the UK and saw no signs of slower activity among first-time buyers, home movers and those seeking to remortgage. We are still hearing stories from buyers of numerous people all offering for the same properties and having to increase their offers.
“The lack of supply is doubtless playing a role in this. With fixed mortgage rates continuing to edge down, we’re expecting quite a busy end to 2023. The Bank of England needs to pause its base rate activity, but we said that last month and sadly Threadneedle Street seems to be singing to Rishi’s tune rather than that of the struggling taxpayer.”
Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com:
“August is always a quiet month, but we found it unusually slow for new buyer enquiries. There are people looking to buy but caution is the order of the day.
“The Bank of England seems addicted to base rate rises, and we could see another one on Sept 21st, tightening the screw on household budgets even further.
“As we saw with the Nationwide last week, the pace of house price falls is starting to accelerate and I wouldn’t be surprised if monthly drops of around 1% become the norm for the next 6-12 months.”
Rhys Schofield, brand director at Derbyshire-based mortgage advisers, Peak Mortgages and Protection:
“People should never read too much into August and December house price figures, as the traditional lulls tell you very little. As bellwether months go, September is traditionally one of the year’s busiest so let’s see how this month unfolds.
“The early signs are that, with the kids now back in school, it’s going to be a busy one. The fact that mortgage rates are nudging down, if only slightly, is starting to stimulate activity.”
Nicky Stevenson, managing director at national estate agent group Fine & Country:
“The rise in borrowing costs combined with traditional summer slowdown have put the brakes on house price growth, although average prices remain well above pre-pandemic levels.
“The number of properties available for sale remains constrained compared to 2019, which was a fairly typical year for the housing market. This is playing a part in preventing bigger falls in prices even though affordability is tight.
“While demand has slowed over the summer, this matches normal seasonal patterns and is expected to build again as we head into autumn.
“Mortgage lenders are competing for business again and bringing down their mortgage rates accordingly, which will ease pressure on home-buyers and will further prop up demand over the coming months.
“If a pause in base rate rises does materialise this year, this should further boost buyer confidence.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“Prices continue to soften although they are supported to a degree by the shortage of stock and fewer but more serious buyers.
“With so many rate rises, affordability is a concern, especially for those on tighter budgets, often buying smaller properties so the market remains price sensitive.
“The penny has dropped for the majority of sellers who are recognising that they may not achieve what they originally anticipated. As many sellers are also buyers, they realise that although they may have to accept less than they initially wanted for their property, they will also pay less for their next home which is significant as many will be trading up.
“Those sellers who refuse to recognise that prices are softening will remain on the market and may end up having to accept a lower price in order to make their move.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“With the markets still pricing in another 50 basis points rate rise, affordability will prey on buyers’ minds for a while yet and they are bound to be price sensitive because of it.
The good news for borrowers is that lenders continue to reduce their fixed rates. Not only that, but criteria is also broadening as evidenced by HSBC increasing its mortgage term to 40 years, as appetite to lend returns.”
Gareth Lewis, managing director of property lender MT Finance:
“It is natural that we will continue to see this downward trend around values, although it is not armageddon as prices are still higher than they were pre-pandemic.
“When there is a low interest rate environment, it is ultimately a sellers’ market because they can command higher prices as more people want to buy and have the means to pay over the odds.
“Since then, there has been a realignment with borrowers paying more for their money and therefore more conscious of what they are paying. With fewer buyers around, they know there is less competition so are not going to pay inflated values but will try that low-ball offer.”
James Briggs, head of personal finance intermediary sales at Together:
“While the latest dip in house prices may open up buying opportunities for those in a position to snap up discounted homes – the reality is affordability on new purchases remains a barrier for most first-time buyers. And, with further Bank of England rate rises forecasted, hopeful borrowers are tracking mortgage pricing closely with careful consideration of when to strike for the best deal.
“With the continued squeeze on household budgets, an estimated 35% of people’s take-home pay is now being diverted to cover mortgage repayments. This may trigger further issues later this year and lead to more subdued activity.
“Indeed, market forecasts suggest that the rate of mortgage approvals will fall for Q3, dropping to around 40,000 by September, from 55,000 in June. With the overall 30% year-on-year drop in mortgage approvals looking likely, potential buyers should consider specialist lenders, who have the ability to assess finances on a case-by-case basis.”
ich Horner, head of individual protection at MetLife:
“House prices have fallen in August, continuing the downward trend seen much of this year. And, with interest rates expected to peak in September at 5.5%, buyers eagerly awaiting a stable market may be able to take the plunge earlier than first anticipated.
“However, while the headlines indicate lenders are starting to reduce mortgage rates, this will be too late for millions of homeowners who will have needed to secure higher mortgage repayments in the short-term.
“It’s easy to focus simply on securing the mortgage itself, but this is a critical time for homeowners to take the opportunity to assess whether they have adequate protection for their mortgage and family circumstances in place. Planning for contingencies is now more crucial than ever before and having the right protection in place to meet the needs of individual circumstances really can provide far greater peace of mind should an accident or illness prevent you from working and potentially putting monthly repayments at risk.”
Iain McKenzie, CEO of The Guild of Property Professionals:
“The volatility in house prices continues with the steepest drop since the disastrous effects of last year’s ‘mini-Budget’ began to unravel.
“Sellers may be worried that the value of their home is falling, but keep in mind that it is still worth significantly more than it was prior to the pandemic. The readjustment we have seen this year merely puts us back to early 2022 levels.
“Much of this change is influenced by the greater flexibility in asking prices that we are seeing across the country. The South of England is particularly impacted by the fall in house prices, although many first-time buyers in parts of the South have found the market unaffordable for years.
“The landscape is unlikely to change anytime soon. The continued demand for good quality housing is keeping house prices propped up, but affordability concerns and the slower rates of mortgage approvals are stopping growth.
“The autumn months are usually still busy, as Brits look to hunker down in their new homes before the winter weather kicks in. It remains to be seen whether we will continue to see these sudden drops in house prices.”
James Forrester, managing director of Barrows and Forrester:
“Such a sharp annual decline will certainly spur panic amongst the nation’s homebuyers and sellers at first glance. But it’s important to remember that this time last year the market was flying high at the peak of the pandemic price boom, so it would have taken a monumental spike in market activity this time around to avoid an annual decline in property values.
“It’s also important to note that August is peak silly season in the UK property market and so there is very much a seasonal influence at play here. Buyers, sellers and property professionals alike will have taken time off for their summer breaks, the result of which is a reduction in market activity and a more sluggish rate of house price growth.”
Marc von Grundherr, director of Benham and Reeves:
“What goes up must come down. What we’re now seeing is the market ‘return to normality following the sustained levels of house price growth spurred by the stamp duty holiday at the start of the pandemic.
“This decline has been intensified by additional factors such as the consistent increase in interest rates and the increased cost of borrowing, however, we don’t anticipate this drop to be the tip of the iceberg.
“House prices remain far higher than they were pre-pandemic and it would take a substantial market crash to reverse this. Given the overall health of the market, this simply isn’t on the cards.”
Chris Hodgkinson, managing director of House Buyer Bureau:
“Buyer indecision continues to dampen market sentiment, with the majority still unwilling to borrow the sums required to satisfy seller expectations. As a result, property values have continued to level out as predicted and this will remain the case until a middle ground is reached.
“For sellers, this means a further adjustment where their asking price expectations are concerned if they want to secure a buyer. However, the required adjustment is marginal in comparison to the house price increase they will have enjoyed over the last few years.”
