The UK housing market is facing a sharp slowdown as high interest rates dampen buyer demand and push down property prices.
Halifax Reports 4.6% Annual Fall in House Prices
According to the latest data from Halifax, the UK’s largest mortgage lender, the average house price fell by 4.6% in the year to August, the biggest annual decline since 2009. The average house price dropped to £279,569, down by around £14,000 over the last year, and back to the level seen in early 2022.
Halifax said that Southern England and Wales were seeing the most downward pressure on house prices, while Scotland was showing greater resilience. The lender also noted that there was increased volatility in the monthly figures, as activity levels were lower due to higher mortgage costs and uncertainty over the future direction of interest rates.
Nationwide Confirms 5.3% Annual Drop in House Prices
Halifax’s data was in line with the figures released by Nationwide, another major mortgage lender, last week. Nationwide reported that UK house prices fell by 5.3% annually in August, the fastest annual drop in 14 years. The average house price fell to £259,153, marking the largest annual percentage drop since July 2009.
Nationwide attributed the fall in house prices to the impact of higher interest rates, which have risen five times since August 2022, reaching 1.25% in July 2023. The lender said that higher borrowing costs had reduced affordability and demand for housing, especially among first-time buyers and those with lower incomes.
Bank of England Signals Interest Rates Near Peak
However, there are some signs that UK borrowing costs could be close to their peak, as the Bank of England (BoE) expects inflation to ease in the coming months. The BoE governor, Andrew Bailey, said on Wednesday that interest rates were probably “near the top of the cycle”, and predicted that there would be a further “marked” drop in inflation this year.
The BoE raised its inflation forecast for 2023 to 4%, up from 3.5% previously, but said that this was mainly due to temporary factors such as higher energy prices and supply chain disruptions. The central bank expects inflation to fall back to its 2% target by 2024, as these factors fade and demand moderates.
Outlook for UK Housing Market Remains Uncertain
Despite the BoE’s optimistic outlook, some analysts warn that the UK housing market could face further challenges in the near future. They point out that house prices are still unaffordable for most of the UK population, and that higher interest rates could make mortgages more expensive and deter potential buyers.
They also note that the UK housing market is facing a supply shortage, as homeowners are reluctant to sell in a falling market, and new construction is lagging behind demand. This could limit the scope for further price declines, but also constrain sales activity and market liquidity.
