House prices in the United Kingdom experienced their most substantial annual decline in 14 years, with the average property value falling by £14,000 over the past year, according to a report released by the Halifax. The data, which was compiled until the end of August 2023, reveals a significant 4.6% drop in house prices, mainly down to rising mortgage rates impacting the housing market. However, it’s essential to consider this decrease in the context of last summer’s record high property prices. Halifax have actually emphasised that this 4.6% decline reflects a correction from the unsustainable peaks seen in the housing market last summer.
UK House Prices Declined By As Much As £14,000 According To Halifax
Halifax’s latest data released as part of their August 2023 House Price Index indicates that the average home now costs around £279,560. A decline of £14,000 since last August’s figures were released. Halifax’s prediction for the remainder of the year is not optimistic, with expectations of further price declines. In fact, the report indicates that prices fell by 1.9% between July and August 2023. In the report, Kim Kinnaird, Director of Mortgages at Halifax, commented on the situation, saying:
“we may now be seeing a greater impact from higher mortgage costs flowing through to house prices. Increased volatility month-to-month is also to be expected when activity levels are lower, though overall the pace of decline remains in line with our outlook for the year as a whole. 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.
“We do expect further downward pressure on property prices through to the end of this year and into next, in line with previous forecasts. While any drop won’t be welcomed by current homeowners, it’s important to remember that prices remain some £40,000 (+17%) above pre-pandemic levels. It may also come as some relief to those looking to get onto the property ladder.”
Rising Interest Rates Impacted House Prices
One of the main factors contributing to the volatile housing market conditions is the Bank of England’s decision (s) to raise interest rates repeatedly since December 2021. As of now, the bank’s base rate stands at 5.25%. Despite inflation falling quicker than expected and predicted to fall even more significantly, financial experts still anticipate another inflation increase to 5.5% this month.
In recent weeks, we have seen fewer and fewer lenders actually increasing their rates and more and more are starting to bring their rates back down. The average mortgage rate in the UK is still just above 6%, however there are plenty of lenders offering sub 6% rates and more reductions are definitely on the horizon.
Although mortgage rates are no longer on the rise, they remain considerably higher than what many borrowers have been used to over the last 10 years or so. Consequently, some potential buyers are choosing to delay their house purchases, particularly first-time buyers. While they may appreciate the fall in prices, they still face relatively high repayment costs, along with other cost-of-living pressures, such as rising prices of shopping and energy bills. For example:
In 2021 a first time buyer might be purchasing a 2-bed semi detached house for £250,000 with a 10% deposit and a 3% mortgage interest rate. Over 35 years, that would equate to £866 per month mortgage payment. In 2023 a first time buyer could purchase the same property at a £14,000 decrease at £236,000 with 10% deposit but with an average interest rate of 6.5%. Over 35 years this would be £1,283 a month. An increase of £417 despite the property falling in value.
Is Decrease Actually A Return To Normal Property Prices?
Despite the decrease in property values, Halifax suggests in their report that prices have only dropped to levels seen at the start of last year. The report points out that property prices were at a record high last summer, and these drops could simply be a return to more realistic house prices. And despite decreases in UK property prices, they are still £40,000 higher than pre-pandemic levels. The decline in house prices has been felt across the entire UK. The most significant drop was observed in London at £22,777. Although it is still the most expensive place to purchase property in the UK, with average prices at £529,814.
Consult A Property Expert
The impact of rising mortgage rates and the Bank of England’s repeated interest rate hikes has led to the fastest annual decline in house prices in 14 years. While this may provide some relief to potential buyers, challenges remain in the form of high repayment costs and other rising living expenses. The best thing you can do to ensure that you are getting the most out of your property and your mortgage deal is to consult with an expert who knows what they are doing. Call our email our mortgage team today to book in a free initial mortgage consultation. We are here to help.