In a recent report by Halifax, the United Kingdom's housing market experienced its sharpest annual decline in 14 years, with house prices plummeting by 4.6% by the end of August.
This substantial decrease translates to an average price reduction of £14,000.
It is worth noting that this decline is in comparison to the record-high property prices observed during the same period the previous year. Halifax analysts anticipate further price drops throughout the remainder of the year, citing a 1.9% decrease between July and August alone.
Kim Kinnaird, the Director of Mortgages at Halifax, suggested that this trend might be attributed to the increasing mortgage rates, which are putting pressure on the market. Kinnaird remarked, "We may now be seeing a greater impact from higher mortgage costs flowing through to house prices. The market will continue to rebalance until it finds an equilibrium where buyers are comfortable with mortgage costs in a higher range than seen over the previous 15 years."
Since December 2021, the Bank of England has raised interest rates 14 times consecutively in an effort to curb rising consumer prices in the UK, with the current base rate standing at 5.25%. Bank Governor Andrew Bailey noted that interest rates are now "much nearer" to their peak, though financial markets still anticipate further increases, possibly reaching 5.5% this month and potentially rising further.
According to Halifax's data, the average home price in the UK now stands at £279,560. However, this figure only takes into account buyers with mortgages and does not include those who purchase properties with cash or through buy-to-let arrangements. Official data indicates that cash buyers make up over a third of housing sales.
Competing lender Nationwide reported a similar trend, stating that house prices had fallen by 5.3% in the year leading up to August, marking the most significant annual decline since 2009.
While mortgage rates are no longer on the rise, they still remain considerably higher than what many borrowers are accustomed to. This has caused some potential buyers to delay their housing purchases. Currently, the average rate for a two-year fixed-rate mortgage is 6.67%, while a typical five-year deal carries a rate of 6.16%. First-time buyers, while welcoming the decline in property prices, are still burdened by relatively high repayment costs, along with other cost-of-living pressures such as increased retail prices. On the bright side, wage growth has somewhat improved affordability.
Despite the decline in property values, Halifax emphasized that prices have only retraced to levels seen at the beginning of the previous year and remain £40,000 higher than before the onset of the pandemic.
Halifax's report also indicated that house prices had fallen across all regions of the UK, with the most significant drop occurring in London. However, London continues to be the most expensive location for property purchases in the country.
Nicky Stevenson, Managing Director at estate agent group Fine & Country, pointed out that the limited availability of properties for sale compared to 2019, a more typical year for the housing market, is a contributing factor preventing more significant price reductions despite tight affordability constraints.