House Prices Fall For First Time Since June 2021

According to the recently published House Price Index by Halifax, July has seen house prices fall by 0.1%.

For the first time since June 2021, the housing market has seen house prices fall. Although the monthly decrease is only moderate, with a fall of 0.1%, it is a sign of the market starting to become more moderate.

While we shouldn’t read too much into any single month, especially as the fall is only fractional, a slowdown in annual house price growth has been expected for some time. Leading indicators of the housing market have recently shown a softening of activity, while rising borrowing costs are adding to the squeeze on household
budgets against a backdrop of exceptionally high house price-to-income ratios.

Russell Galley, Managing Director at Halifax

The average house price in July in the UK was £293,221, down from £293,586 in June. This is a strong indication that the cost-of-living crisis and rising interest rates are starting to impact the housing market.

However, house prices are still £30,000 higher than the same time last year, with the annual growth rate currently at 11.8%.

A Different Picture In Different Regions

While overall, we have seen house prices fall in July in the UK, it’s not the same in all regions.

Wales is back on the top of the table with an annual growth rate of 14.7%. The second spot is held by the South West of England, with annual growth of 14.13%.

Northern Ireland has seen a slight fall in the annual growth rate and now stands at 14%. This means an average home in Northern Ireland will now cost you £187,102.

Scotland has also seen a slight decrease in their annual growth rate, which fell from 9.9% to 9.6%. The average house price now stands at £203,677 for a home in Scotland.

London’s annual growth rate has been slower than in the rest of the country, with 7.9%. But property in the capital still costs more than everywhere else in the UK, with the average house price at £554,777.

The slower growth in London is largely down to the effects of the pandemic, when many people “fled” the capital in the search for more space in more rural areas. However, since the lifting of restrictions and a return to the office, people are moving back into the city.

Despite the cost-of-living crisis and rising interest rates, the market has been buoyant so far, mostly driven by the lack of housing supply, which makes sure that house prices remain high.

That said, some of the drivers of the buoyant market we’ve seen over recent years – such as extra funds saved during the pandemic, fundamental changes in how people use their homes, and investment demand, still remain evident. The extremely short supply of homes for sale is also a significant long-term challenge but serves to
underpin high property prices.

Russell Galley, Managing Director at Halifax

However, the financial pressures, such as rising prices, energy bills and rising interest rates will lead to a stronger slowdown of the annual house price growth.

Further Rise In Interest Rates Harm First-Time Buyers

While first-time buyers will be glad to see house prices fall, especially as first-time buyer homes have seen a noticeable drop in annual price growth from 12.4% to 10.7%.

However, the newly announced rise in interest rates will hurt. The Bank of England has raised interest rates from 1.25% to 1.75% to combat rising inflation, which they expect to exceed 13% this year.

This means first-time buyers will see 40% of their gross salary used to cover their mortgage, which is the highest level since 2012.

Average monthly mortgage payments will be over £1,000 for new first-time buyers since the rise in interest rates by 0.5%

High interest rates combined with high property prices and high costs of living, make it difficult for first-time buyers to get onto the property ladder.

Even if they manage to get a 10% deposit together. And while ten years ago this meant saving on average £14,316, today this figure has risen to £22,494 due to the increase in house prices.

However, compared to ten years ago, average mortgage rates for a two-year fixed rate are still relatively low with 3%. Ten years ago this rate would have been almost 6%.

But despite all these challenges, first-time buyers still seem very motivated to buy their first home. Demand for first-time buyer homes is still 35% higher than before the pandemic, in 2019.

So first-time buyers will be pleased to hear that the market has seen house prices fall in July, even if only by a fraction. And given the further financial pressures that are expected this winter, it is likely that the housing market will slow down even further.