According to data from Halifax, house prices are currently experiencing the fastest decline in 12 years, while mortgage rates continue to steadily rise. Currently, house prices have fallen by 2.6% annually, equivalent to an average decrease of £7,500 in the UK. June marks the third consecutive month of price declines, indicating a gradual cooling of the property market. Prior to this, house prices in May saw a year-on-year drop of 3.4%, the largest decline since July 2009.
Kim Kinnaird from Halifax stated that the pressure brought by high interest rates is dampening demand in the market, as prospective buyers consider whether they can afford the high interest payments associated with the elevated rates. Meanwhile, it is difficult to predict the extent and duration of the house price downturn.
Last year, the market experienced high demand due to the temporary Stamp Duty cut, leading to an acute shortage of housing supply. House prices in the UK reached a relatively high level, with annual growth peaking at 12.5% in June. Therefore, this year’s price decline is particularly noticeable. Currently, the volume of mortgage applications remains relatively normal, with a significant proportion coming from first-time buyers.
However, the lender also noted that mortgage rates are expected to remain at higher levels for an extended period. Over the next year, UK households will face increased financial pressure, putting downward pressure on house prices. On the other hand, the increase in rates is intended to curb inflation. While energy and food prices may temporarily dampen consumer price inflation, core inflation (which excludes energy and food prices) is proving stubborn and difficult to reduce. In the short term, people will likely face the combined pain of both high prices and high interest rates.
Lenders have also been significantly impacted. With the rise in rates, many borrowers quickly took action and opted for fixed-rate mortgages, resulting in fewer borrowers on standard variable rates than anticipated. This has led to significant losses for lenders like banks, and a decline in their share prices.
Adam Smith, the founder of Alfa Mortgages, also expressed that people’s financial pressures will continue to push down house prices and have a significant impact on the market. However, he does not believe that the real estate industry will face a collapse, but rather undergo adjustments, eventually stabilising over the next year.