UK house prices recorded an annual drop of 1.0% in May, the first such decline since December 2012, according to Halifax Mortgages. This marks a considerable contrast from April, when annual growth rates were at a modest +0.1%.
Despite the downturn, average house prices remained virtually unchanged from April to May, with the typical UK property valued at £286,532, only slightly down from April’s figure of £286,662.
Director of Halifax Mortgages, Kim Kinnaird, explained that the flat monthly rates were largely reflective of strong house prices this time last year. “Property prices have now fallen by about £3,000 over the last 12 months and are down around £7,500 from the peak in August. But prices are still £5,000 up since the end of last year, and £25,000 above the level of two years ago.”
She further noted that the promising start to the housing market in the first quarter had faded, with the knock-on effects of increased interest rates starting to impact household budgets, particularly for those with fixed-rate mortgage deals nearing completion.
With consumer price inflation persisting, market expectations are for several more rate rises that could potentially push the base rate above 5% for the first time since early 2008. The shift in rates has already initiated a rise in fixed mortgage rates across the market.
Kinnaird expressed concerns over the potential impact on housing market confidence as both buyers and sellers adjust their expectations. Current industry figures for both mortgage approvals and completed transactions show a cooling in demand, hinting at further downward pressure on house prices.
Regionally, prices continue to fall annually across southern England, led by the South East (-1.6%, average price £385,943), followed closely by the South West (-1.4%, average price £301,079) and Greater London, where prices have dropped by 1.2% over the last year, bringing the average price to £536,622.
The only categories to buck the trend are detached houses, which saw an annual increase of 0.4%, and new-build properties, which saw prices rise by 2.8%, albeit at the slowest rate in almost three years.
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Nicky Stevenson, managing director at national estate agent group Fine & Country:
“Flattening house price growth reflects the tougher conditions faced by the property market at the moment, though the promise of lower prices is helping to attract a steady stream of buyers seeking to negotiate a good deal on their next home.
“The three May bank holidays gave buyers a great opportunity to resume their property search, and they are benefiting from a market which gives them much more breathing room to carefully consider their options.
“Strengthening stock levels are also helping to drive demand as buyers have much more choice than they did last year.
“Homes are still selling well, though many at a lower price than seen over previous months, with agreed sales over the four weeks in May reaching their highest point so far this year, up 11% on the five-year average on the same period.
“However, the recent removal of some mortgage products ahead of another base rate review later this month suggests that there are still some hurdles to overcome.
“Although the higher interest rate environment has become an accepted new-normal, buyers will still be keeping a close eye on the next interest rate decision.”
Jamie Minors, managing director at Norwich-based estate agents, Minors & Brady:
“Though the annual rate of house price growth is in the red for the first time since 2012, this has a lot to do with the strength of the property market this time last year. The fact that growth remained flat in May is a more accurate gauge of the market.
“Clearly the volatility in the mortgage sector at the tail end of the month is likely to have impacted some buyers’ confidence, but they have not headed for the hills. The jobs market is a massive driver of sentiment and for now that is holding up. All eyes now are on the next interest rate decision later this month.”
Chris Barry, director at Gloucester-based conveyancer, Thomas Legal:
“While there is certainly likely to be a cooling in demand over the next month or two, committed buyers will continue to buy. We had a record May in terms of the number of new enquiries but it’s likely June and July activity could decline as the number of new buyers coming to the market reduces following the latest spate of mortgage rate increases.
“In our experience, estate agents have the highest stock levels in years and clients who have mortgage offers, but haven’t found a property yet, are making offers before the product they have secured expires. House prices have risen circa 30% over the past four years so I don’t see a small pullback in value caused by the mortgage market mayhem of the past fortnight affecting buyer behaviour that much.”
Kim McGinley, director at Lee-on-the-Solent-based Vibe Specialist Finance:
“Annual house price growth may be down for the first time in 11 years, but what we are witnessing is a correction rather than a crash. This may be reflected in the fact prices were flat in May, following a fall in April.
“After the mini-Budget, confidence in the property market fell sharply but during the spring sentiment steadily improved as mortgage rates came down and the economic outlook felt less bleak. Despite the upheaval in the mortgage market over the past fortnight, people have accepted the new rate environment and are getting on with their lives.”
Kevin Dunn, mortgage and protection adviser at Leicester-based financial planner and mortgage broker, Furnley House:
“Though the headline number showing the first negative annual price growth in over a decade makes for grim reading, the flat trajectory of growth in May is a better reflection of where the market is at. Buyers have now adjusted to the higher interest rate world we’re in. The property market is proving more resilient than many thought given the sheer number of headwinds facing the economy, although what happens later this month at the next MPC meeting could clearly have an influence moving forward.”
John Choong, a markets analyst at InvestingReviews.co.uk:
“The latest CPI inflation print caused a ruckus in the mortgage market, as smaller mortgage providers withdrew their packages within hours as gilt yields spiked. However, this seems to be a blip in the grand scheme of things, as mortgage providers are beginning to report a rebound in customer activity after a hectic fortnight.
“As such, house prices going into the second half of the year should remain relatively steady as unemployment remains at healthy levels with slowing inflation also easing pressures on household income.
“More encouragingly, gilt yields have dropped back to their pre-April CPI inflation print levels, which could help to push mortgage rates lower in the months to come. Having said that, you can’t rule out higher mortgage rates if inflation continues to come in hotter than expected.”
Kundan Bhaduri, director of London-based property developer and portfolio landlord, The Kushman Group:
“The property market is powered by sentiment and there’s no doubt that sentiment has been affected over the past fortnight as lenders have repriced across the board, often at short notice. Many buyers are once again wondering, what’s going on? However, supply is still low and the jobs market is proving resilient so while the property market may come under some additional pressure over the summer, it certainly won’t pop. Crucially for transactions, buyers and sellers are increasingly seeing eye-to-eye on pricing and that is keeping the market moving.”
Nick Harris, co-founder at Wokingham-based Quarters Residential Estate Agents:
“Despite the uncertainty that gripped the mortgage market at the end of May and during June to date, the property market is still moving along. While some discretionary buyers continue to sit tight, serious buyers remain very active. Sellers are being much more realistic on price, and are typically also buyers so they appreciate a more balanced property market. Though there has been some turbulence during the past two weeks, the property market armageddon some predicted is simply unlikely to materialise.”
Adam Smith, Founder at Northampton-based Alfa Mortgages:
“Mortgage payments have been on the rise again over the past two weeks so a further increase in the base rate this month will be less than ideal for the property market. Nevertheless, it’s important to remember that we have enjoyed a decade of ultra-low interest rates, and what we’re experiencing now is simply a return to a more normal interest rate environment. People will adapt because they have to.”
Amit Patel, adviser at Welling-based mortgage broker, Trinity Finance:
“It’s still over a fortnight away but attention is already turning to this month’s Bank of England interest rate decision. If the Monetary Policy Committee decides to increase the base rate again, they are going to hurt homeowners and renters alike. They don’t appear to have any awareness of the real world. They are hellbent on making life a misery and a struggle for millions of people.”
Gareth Lewis, managing director of property lender MT Finance:
“These numbers are unsurprising, given the fall in transactions. They also reflect that those who are willing to buy are less bullish when it comes to committing to higher house prices because everything is costing more, so the are going to chip away at the price.
“Mortgage borrowers on the whole, other than perhaps some first-time buyers, can still afford a mortgage but just have to be prepared to put their hand in their pocket a bit more. This is all part of what is essentially a re-education process; money isn’t free and you are going to have to pay more for it in future.
“The housing market will inevitably be quieter as a result.”
Kay Westgarth, sales director, Standard Life Home Finance:
“While some indexes suggest that sellers remain highly optimistic about the sale price they can achieve for their home, the Halifax figures highlight the true impact of the Government’s attempts to manage inflation via higher rates. That said, we appear to be seeing a market that is gently settling rather suffering any catastrophic changes as predicted towards the end of last year.
“It’s always important to take a longer view whenever we consider the current climate as the UK property market is remarkably resilient. With limited housing stock as well as a significant proportion of older people owning their homes outright and many homeowners still on fixed rate mortgages, the picture is brighter than some suggest.
“Nevertheless, it would be remiss to ignore the ongoing affordability issues that are also shaping the market – especially as more and more people start needing to remortgage to significantly higher rates. While there is currently no easy answer intergenerational support is expected to play a greater role as older relatives help people onto the property ladder and support them as they stay there.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“Halifax, like the Nationwide figures, exclude cash sales and reflect activity from a few months ago. However, they do confirm recent trends that tentative market recovery is being threatened by the prospect of more interest rate rises and stubbornly high inflation.
“However, the survey shows prices are still considerably above where they were two years ago so cash and equity-rich buyers in particular are recognising the opportunities. Many mortgage holders too will be relieved that their lenders built in a buffer of at least 2% or 3% at the outset, provided of course their circumstances have not substantially changed.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“Lenders continue to increase their mortgage rates, pulling products with little or no notice in response partly to funding costs and in response to what other lenders are doing. This will inevitably impact what buyers can afford and in some cases they may put decisions on hold until the situation improves.
“Swap rates, which underpin the pricing of fixed-rate mortgages, have settled since the inflation news sent them soaring. If this continues, we would expect mortgage pricing to also become less volatile.
“Borrowers coming up to remortgage who are worried about their options should seek advice from a broker and consider reserving a rate for peace of mind. If rates fall before they need it, they could always opt for a cheaper product.”
Karen Noye, mortgage expert at Quilter:
“The UK housing market experienced yet more stagnation in May, with house prices remaining flat (0.0%) following a 0.4% fall in April. However, this now marks the first annual decline in house prices since December 2012. However, despite this decline the average property price is now £286,532, a modest reduction from April’s average of £286,662 and clearly still a very high figure for many. It is worth noting that this flat performance doesn’t imply an equal impact across all sectors of the market. Detached properties are still experiencing growth, while house prices in the south of England are under the most significant pressure likely due to years of heavy increases causing them to bloat.
“Several factors have contributed to this downward pressure on house prices. First, higher interest rates have impacted household budgets, particularly those with fixed-rate mortgage deals that are now coming to an end. Millions are soon to feel this pain and the increased mortgage payments will serve to put a huge dent in people’s everyday finances. Markets are pricing in several more rate rises that would push the Base Rate above 5% and as a result we have recently seen mortgage lenders up their rates in response after a period of stability. This expectation is causing fixed mortgage rates to rise again across the market, impacting confidence and causing a cooling of demand, as reflected in the latest industry figures for both mortgage approvals and completed transactions.
“Second, the ongoing effect of inflation is impacting the housing market. With consumer price inflation remaining high, real income growth has been hampered, affecting consumer spending and, by extension, housing demand. This combination of higher borrowing costs and reduced affordability has resulted in a slow-down of the housing market with people simply not having the appetite to jump into the property market at such a turbulent financial time.
“The real canary down the mine for how fast and severe house prices will drop will be unemployment rates. At present employment is still high and while unemployment rates have recently ticked up from very low levels it has held firm in the face of strong economic headwinds. If this was to change then we would see many more people unable to keep up with their bills causing more houses to come onto the market and prices to drop as a result
“It appears likely that the UK housing market will continue to face challenges in the coming months. However, these effects may be somewhat mitigated if wage growth remains robust and unemployment stays low but with unexpectedly high CPI figures continuing to knock Britain’s recovery from the cost of living crisis off course it is anyone’s guess how things might pan out as we head into the summer and into autumn.”
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“All signs are pointing south for the property market. Prices are down in a year, and although they remained flat in May, this is the first month that the Halifax has measured annual falls. Unfortunately for sellers, this reflects the weakness that had crept into the market before the impact of higher rates had been passed onto Halifax customers – which is happening today. It means the pain is unlikely to be over yet.
“There were some very small rises in mortgage rates at this stage, but nothing to frighten the horses, so it’s unlikely to have been mortgage rates driving the fall in house prices in May. Instead, it owes a great deal to the fall in demand. The Royal Institution of Chartered Surveyors has charted a relentless drop off in demand and agreed sales for months. It was down again in April, which is likely to have fed into lower prices of transactions in May. The Bank of England announced that mortgages approved for house prices in the coming months also dropped over 5% in April, which means that even without the hike in mortgage rates we were expecting a seriously sluggish summer.
“This is far from over. Core inflation sent shockwaves through the mortgage market at the end of May, and we’re still feeling the effects as major lenders bump up prices. The market now expects rates to be higher for longer, which means fixed rate mortgage prices are increasing. Today Halifax will push up rates on its two-and five-year fixed rate deals, which is likely to depress prices even further in the coming months.
“The fact that so much of the mortgage market is fixed means this will take some time to feed into the property market – and then some time to feed out again. It’s why Oxford Economics has predicted house prices will continue to fall for longer – to the autumn of 2025, and not recover to 2022 levels until 2028. On the flip side, it means they’re expecting annual falls to be smaller than in previous downturns, with declines of around 4.3% a year in the last three months of this year, 4.1% by the end of next year, and then a 1.1% drop in 2025.
“No forecast is ever guaranteed, but for those who are buying and selling at the moment, the risk that prices could remain weaker for years should factor into your plans. For some people it’s not enough to put them off. Making a decision about where you live comes down to more than just price. It lies at the heart of how you live too, and for some people that means it’s worth paying today’s price, even if it’s worth less for the next five years. If you’re buying somewhere for the long term at a price you can afford, then this isn’t a reason to stop.
“However, for anyone overstretching themselves or considering a move somewhere they won’t be happy for the long term, it will give them a reason to pause. Playing the wait and see game is always a risk when you’re buying a property, but for some people right now it will be a risk worth taking.”
