Yahoo Finance UK house prices suffer steepest decline in 12 years
The typical UK property now costs £285,932
House prices have suffered their largest annual decline since 2011 as rising mortgage costs push buyers out of the market.
The average price of a home sold in June fell by 2.6% year-on-year, the largest drop in 12 years on Halifax’s index. That follows a 1.1% fall in the year to May.
On a monthly basis, prices dipped by 0.1%, taking the average price to £285,932.
Kim Kinnaird, director at Halifax Mortgages, said: “Concerns about persistent inflation have led to a significant increase in the cost of funding. Coupled with base rate rising by another 50bp, this contributed to a big jump in typical mortgage rates over the last month.
“The resulting squeeze on affordability will inevitably act as a brake on demand, as buyers consider what they can realistically afford to offer. While there’s always a lag effect when rates go up, many existing mortgage holders with variable deals or rolling off fixed rates will likely face an increase in the next year.”
The Bank of England has increased interest rates for 13 consecutive times to 5%, putting pressure on mortgage rates.
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The average cost of a two-year fixed mortgage deal increased to 6.52% on Thursday, according to Moneyfacts. A typical five-year deal tipped above 6% for the first time this year earlier this year.
The South of England remains the area where house prices are facing the most downward pressure, as higher interest rates hit the market.
The annual fall in the South East of 3% was the largest since July 2011, with the average house price now £384,106.
London recorded an annual decline of 2.6%, leaving the average property price at £533,057 and marking its weakest performance since October 2009. Prices have dropped by around £15,000 over the last year.
In the North West, the average house price slipped 0.9% to £168,240 while the North East bucked the trend and saw prices rise slightly (0.2%) to £186,856.
West Midlands, Yorkshire & Humberside and Northern Ireland also bucked the trend and also experienced a price increase.
Welsh house prices suffered their first annual fall since March 2013 with a drop of 1.8% to an average of £215,183
In Scotland, prices were only down slightly on the year by 0.1% to an average of £201,774, but this was the first annual contraction in property prices in the last three years.
Adam Smith, founder at Northampton-based Alfa Mortgages, said the “immense strain being put on people’s finances will almost certainly send prices lower during the months ahead”.
"Inflation is proving extremely stubborn and the base rate is now expected to peak far higher than we thought a couple of months ago. However, the housing market could still experience a correction rather than a crash during the next 12 months due to the lack of supply and strength of the jobs market," he said.
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Martin Beck, chief economic advisor to the EY ITEM Club, warns that the rise in mortgage rates over the last month, if sustained, will increase the challenges faced by those renegotiating fixed rate mortgages.
“The rise in swap rates reflects markets’ view that the Bank of England will continue to raise rates significantly, with Bank Rate now widely expected to peak at 6.5% early next year. But the EY ITEM Club thinks an improving inflation outlook means the market view is too downbeat and that rates will stabilise after two further rises by the Bank of England,” he said.
“If that prediction is correct, mortgage rates should fall back during the second half of this year, albeit to levels still high by the standards of the last decade or so,” he added.
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