The UK housing market experienced a slight decline of 0.3% in property prices for July, marking the fourth consecutive monthly drop. Despite this pattern, industry data reflects resilience within the market.
“Average UK house prices edged down slightly in July, with the monthly fall of -0.3% equivalent to a drop of around £1,000 in cash terms. While this was the fourth consecutive monthly decrease, all have been smaller than -0.5%,” said Kim Kinnaird, director at Halifax Mortgages.
The typical UK home now costs £285,044, down from a peak of £293,992 last August. The annual decline also slowed to -2.4% in July, compared to -2.6% in June.
“In reality, prices are little changed over the last six months, with the typical property now costing £285,044, compared to £285,660 in February,” Kinnaird noted. These figures highlight a housing market showing a degree of resilience in the face of economic challenges.
Kinnaird also observed some activity among first-time buyers, with signs that they are now seeking smaller homes to offset higher borrowing costs. On the other hand, the buy-to-let sector appears to be feeling some pressure, due to factors such as elevated interest rates and potential future rental market reforms.
“Prospects for the UK housing market remain closely linked to the performance of the wider economy. Several factors are providing support, notably strong wage growth, running at around +7% annually. And, while the uptick in unemployment is likely to restrain that somewhat, it seems unlikely to reach levels that would trigger a sharp deterioration in conditions,” Kinnaird added.
She further indicated that the continued affordability squeeze would likely lead to continued falls in house prices into next year, but anticipated “a gradual rather than a precipitous decline. And one that is unlikely to fully reverse the house price growth recorded over recent years, with average property prices still some £45,000 (+19%) above pre-Covid levels.”
Regional analysis showed annual declines in nearly all parts of the UK. The South East experienced the most significant drop, down 3.9%, while the West Midlands remained flat. London and Wales also saw noticeable decreases, with annual falls of 3.5% and 3.3%, respectively.
Reaction
Nathan Emerson, CEO of Propertymark:
“Even though house prices have fallen year-on-year, this does not compare to the dramatic price rises that we experienced last year. As house prices begin to steady, and with recent rises in wages, houses are becoming more affordable while equity is remaining stable.
“After recent positive inflation news bringing the potential for a peak in interest rates sooner than previously expected, there is also some hope that fixed mortgage rates will start to fall. Even as they remain high compared to recent standards, buyers are able to negotiate on price and come to a middle ground with sellers still able to make a healthy gain on the final sale price.”
James Briggs, head of personal finance intermediary sales at Together:
“House prices may have continued a downward trajectory; however, affordability is still putting pressure on existing homeowners. Those with recently expired fixed rates are now being forced to reconsider perhaps less desirable strategies to balance their household expenditure, including downsizing sooner than hoped.
“Over the past two weeks there has also been a downward trend of fixed rate residential mortgage rates as the swap market pricing has cooled, making these more accessible compared with recent months. This change coupled with a downsizing appetite will increase competition for sub £300k properties and first-time buyers looking to enter the market in the near future.
“And yet, there is still caution around further rate rises, which is fueling hesitation among potential buyers. The time to market properties is being dragged out past expectation, which in turn is driving vendors to accept much lower offers, further impacting on comparable values for mortgage purposes.”
Nicky Stevenson, managing director at national estate agent group Fine & Country:
“House prices dipped slightly in July, but the housing market remains in a strong position despite the economic headwinds.
“The easing of inflation improves the outlook for the property market, and although prices are still likely to cool further, it should be at a much slower rate than originally predicted.
“It seems even more likely that the property market will have a soft landing, and this is partly down to a big pool of motivated buyers who are still snapping up sensibly priced properties.
“Smaller homes in affordable locations close to major employment hotspots are the biggest draw at the moment, and these are also enticing first-time buyers to the market.
“There is some evidence that mortgage interest rates are having the greatest impact on the higher-value portion of the market, particularly for larger three and four-bed family homes. Southern England, which has some of the most expensive properties in the country, is experiencing a bigger drop in prices as buyer affordability is squeezed.
“A slowdown in rate rises, if inflation continues to be brought under control, could start to ease those pressures over the coming months.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services:
“Reflecting what the Halifax have said, we’ve seen more first-time buyers in the past two weeks than in the previous two months. This segment of the market is proving especially resilient. With the sell-off in the buy-to-let market in full swing, combined with an increase in more property for sale generally, aspiring homeowners can smell blood.
“First-time buyers are in an incredibly strong position, and it’s not uncommon to see them agreeing on purchases at 10% to 15% below the marketed price. It must be hard going for estate agents trying to manage vendor expectations. However, this is a sign of the times, and those sellers that don’t take a fair offer now could find they’re much more out of pocket in a month or two.”
Jonathan Gordon, director of international real estate specialists, IP Global:
“With affordability under pressure given current mortgage rates, further house price falls are likely until inflation is brought to heel. Rising interest rates have subdued demand but the supply of property in the UK is limited and further construction is becoming increasingly difficult to achieve, which will support prices.
“The precipitous house price declines some have predicted are looking increasingly unlikely. Construction has been constrained due to numerous factors including fewer construction workers since Brexit, the Covid-19 backlog and the political upheaval in Eastern Europe, driving up raw material costs and causing supply chain issues. All of this means a house price correction is more likely than a collapse due to the lack of supply and new housing stock.”
John Choong, an equity and markets analyst at investing comparison platform, InvestingReviews.co.uk:
“The Halifax is correct to note that the performance of the UK housing market will be closely linked to the performance of the wider economy, specifically three main factors: the unemployment rate, real wage growth and how quickly inflation falls, which affects mortgage rates. While there’s no doubt that the market is in for a volatile time, it’s premature to call an outright property market crash, especially given the surprising resilience of the British economy to date. A soft landing for the property market is still entirely possible, and both the Halifax and the Nationwide appear to agree on that front.
“Though house prices are likely to continue to fall in the near future as the recent spikes in mortgage rates have not yet had a full impact on the market due to many people being protected by ultra-low fixed rates, a crash is unlikely. The unemployment rate remains at historical lows, while real wages continue to keep up with inflation, which should give household incomes a much-needed boost.”
Kirsty Wells, director of Saint Leonards-on-Sea-based Blueprint Mortgages: “In the past few months, I have had a big increase in enquiries from first-time buyers, who are proving particularly resilient given market conditions. They are in a much stronger position currently as so many people have their properties on the market but can’t sell so building a chain is very tricky, whereas if a first-time buyer can come along and save the day, then they can negotiate a better price. I have seen clients negotiating around 5% off average asking prices recently.”
Kundan Bhaduri, director of London-based property developer and portfolio landlord, The Kushman Group:
“At long last the ongoing fall in house prices will achieve what many have been waiting for, namely a chance to get onto that first rung of the property ladder. This decline is helping improve affordability for first-time buyers, who have been struggling to enter the market due to high deposit requirements and rising costs of living.
“This slowdown in house price growth was a long time coming and is a perfect opportunity to rebalance the market and prevent a potential bubble. Of course, the spike in interest rates will no doubt throw a spanner in the works for some aspiring buyers.”
Stephen Perkins, managing director at Norwich-based Yellow Brick Mortgages:
“July certainly saw a slowdown in house sales, despite more properties coming to the market. High mortgage rates and talk of falling house prices to come are resulting in many buyers waiting for better conditions.
“As more would-be sellers languish on the market with no interest from potential buyers, they will have to reduce their asking prices to attract offers.
“So house prices will drop over the coming months. However, it will be a more gradual correction of 5%-10% rather than the more extreme crashes that have been suggested by some. This appears to be the view of the Halifax, too, based on this latest house price report.”
Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com:
“How the economy performs over the next 12 months will be the determining factor in how far house prices fall. Nationwide’s prediction of a soft landing last week is wildly optimistic in my view, simply because a sharp recession in 2024 seems the likeliest outcome. An ever greater percentage of people’s income is being taken by banks, utility companies, supermarkets, landlords and HMRC.
“Other businesses are going to suffer as a result, especially any companies dependent on discretionary spending, which is half the high street. Redundancies will lead to more forced home sales, pushing down prices. I believe we’ll see monthly house price falls of 1% or more within six months, with a peak-to-trough decline of 20% in nominal terms by 2025, and over 30% adjusted for inflation.”
Elliott Culley, director at Hayling Island-based Switch Mortgage Finance:
“Houses prices will almost certainly drop some more as long as interest rates remain as high as they are. When mortgage rates began with a 4, there were still first-time buyers looking to purchase their first property.
“Although house prices did reduce at that time, it was at a lower percentage. Right now the market has cooled with the majority of first-time buyers preferring to wait and see what happens as they find the current repayments simply too expensive.”
Ross McMillan, owner at Glasgow-based Blue Fish Mortgage Solutions:
“In Scotland, it has finally dawned on sellers that the market is perhaps not what they had expected, with a definite re-emergence of more frequent price changes and reductions during July.
“First-time buyers, in particular, remain active, however, and properties within the typical price bracket and areas popular with this sector continue to be competitive with offers above home report commonplace.
“There would appear to now be little doubt that the mid-to-high range of properties generally favoured by those moving up the ladder have seen a drop off in activity as many have chosen to sit tight during recent rate and economic volatility.
“The upcoming inflation data will be hugely significant in how the end of 2023 shapes up but with the expectation that the downward trend will continue, there is hope that we will see a flattening market rather than significant drops in house prices in Scotland. But overall, activity levels may remain subdued as people wait and see how things pan out.”
Ranald Mitchell, director of Norwich-based independent mortgage broker, Charwin Private Clients:
“Housing stock is in decline with more people than ever staying put amid all the economic uncertainty, with a view to weathering the storm. The property market is likely to continue to slow for the remainder of the year as everyone hangs fire to see what happens. Inflation is key as that drives interest rates, which in turn drive mortgages and affordability. All eyes are on the latest inflation data due out mid-August.”
Jamie Lennox, director at Norwich-based mortgage broker, Dimora Mortgages:
“We are now seeing sizeable reductions in asking prices locally and it’s logical to think that this is happening elsewhere in the UK. With the average Norfolk property being close to 10 times the average salary, and mortgage rates at eye-watering levels, it’s no surprise there is a slowdown in the local area.
“This isn’t helped in many situations by agents valuing properties like it’s 2021 and buyers being cautious like it’s 2008. Until inflation is firmly under control, I struggle to see housing market conditions improving.”
Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages:
“On the 16th of August, July’s inflation data will be unveiled, potentially shaping the economic outlook for the rest of the year, all the more so considering it should account for a drop in energy prices.
“Should there be a significant decrease in inflation, it may pave the way for just one additional rate hike this year, which could lead to further improvements in mortgage pricing. That will provide a degree of support to prices moving forward. But for now it’s very quiet out there.”
Anna Clare Harper, CEO of sustainable investment adviser GreenResi:
“This price correction is partly caused by higher interest rates. Housing policy has focused on homeowners’ needs, and on debt to fund new supply, for a long time. With higher interest rates, price growth is being corrected.
“Socially, the most important consideration is not the house prices but the cause: higher interest rates mean higher monthly housing costs, for both homeowners and renters. Higher housing costs are affecting affordability for at least 2 million households on variable rate mortgages or fixed rates coming to an end this year.
“To save ‘Generation Rent’ from homelessness, professional investors are needed to acquire, upgrade and stabilise existing private rental sector homes.”
Iain McKenzie, CEO of The Guild of Property Professionals:
“Despite four consecutive months of declining prices, the outlook for the property industry is not as gloomy as forecasts suggested at the beginning of the year. If the market was as weak as many predicted, house prices would be tumbling right now.
“Instead we are seeing a gradual readjustment in house prices, but we are still way above pre-pandemic levels, much to the disappointment of first-time buyers.
“The main summer months of July and August are generally slow periods for the property market, as house hunters shelve their searches for holidays. This impacts prices, as sellers in a rush to move may be inclined to lower their asking price to entice buyers in.
“The affordability factor is still weighing on the minds of most buyers, but particularly for first-time buyers that may be seeing their deposit not go as far. Others may face mortgage offers that aren’t as competitive as we’ve previously seen over the last decade.
“This squeeze will undoubtedly have an impact on sales, and we are anticipating a fall of around 20% by the end of the year.
“Tackling inflation is the number one priority, followed by committing to building homes which are truly affordable. This will ensure that more buyers are able to get their foot on the property ladder.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“A growing expectation that inflation and interest rates are nearing their respective peaks, combined with continuing strong employment, are all helping to underpin activity.
“Affordability is still a concern, especially for those on tighter budgets, often buying smaller properties so the market remains price sensitive.
“Nevertheless, sellers recognising the importance of proceedable buyers and that the illusive golden offer may not be achievable, are taking advantage.”
Jonathan Hopper, CEO of Garrington Property Finders:
“The property market’s reset is turning into a marathon rather than a sprint. The Halifax’s data shows that average prices continue to fall in all but one regions of the UK, and last week’s ratcheting up of interest rates will nudge up the cost of borrowing further.
“The pace of price falls remains relatively modest – with the Halifax estimating that July’s 0.3% drop shaved £1000 off the price of the average home.
“Meanwhile the Bank of England Governor is warning that higher interest rates are here to stay, pushing up the cost of mortgages and reducing the amount of money would-be buyers can borrow.
“Faced with this new reality, any hesitant movers waiting for interest rates to fall now have the clarity they wanted, if not the outcome they had hoped for.
“Would-be buyers with limited savings and who are heavily reliant on credit are being hit hardest. In many cases they are having to pare their budget right back, either looking for a smaller home or by focusing on more affordable postcodes.
“Buyers who’ve been on the property ladder for longer, and have additional cash savings, are winning on one hand as losing on the other as prices fall. Nevertheless, this is a buyer’s market and those with a decent amount of cash behind them can afford to be more pragmatic in how they structure their finances and their approach to househunting.
“Looking ahead, the market’s price correction is likely to continue as cautious buyers price risk and higher borrowing costs into what they’re prepared to pay for a property. In response, sellers are being forced to accept the new market landscape if they want to move and the market’s soft landing is set to continue.”
