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First annual decline in house prices

First annual decline in house prices

Date: 14 June 2023 | By: cosgrove

The UK housing market experienced yet more stagnation in May with the first annual decline in house prices for a decade, since December 2012; house prices remained flat (0.0%) following a 0.4% fall in April.  However, despite this decline the average property price is now £286,532, a modest reduction from April's average of £286,662 and clearly still a very high figure for many. It is worth noting that this flat performance doesn't imply an equal impact across all sectors of the market. Detached properties are still experiencing growth, while house prices in the south of England are under the most significant pressure likely due to years of heavy increases causing them to bloat.

Several factors have contributed to this downward pressure causing the first annual decline in house prices for a decade. First, higher interest rates have impacted household budgets, particularly those with fixed-rate mortgage deals that are now coming to an end. Millions are soon to feel this pain and the increased mortgage payments will serve to put a huge dent in people’s everyday finances. Markets are pricing in several more rate rises that would push the Base Rate above 5% and as a result we have recently seen mortgage lenders up their rates in response after a period of stability. This expectation is causing fixed mortgage rates to rise again across the market, impacting confidence and causing a cooling of demand, as reflected in the latest industry figures for both mortgage approvals and completed transactions.

Second, the ongoing effect of inflation is impacting the housing market. With consumer price inflation remaining high, real income growth has been hampered, affecting consumer spending and, by extension, housing demand. This combination of higher borrowing costs and reduced affordability has resulted in a slow-down of the housing market with people simply not having the appetite to jump into the property market at such a turbulent financial time.

At present employment is still high and while unemployment rates have recently ticked up from very low levels it has held firm in the face of strong economic headwinds. If this was to change then we would see many more people unable to keep up with their bills causing more houses to come onto the market and prices to drop as a result

It appears likely that the UK housing market will continue to face challenges in the coming months following this first annual decline in house prices for a decade. However, these effects may be somewhat mitigated if wage growth remains robust and unemployment stays low but with unexpectedly high CPI figures continuing to knock Britain’s recovery from the cost of living crisis off course it is anyone’s guess how things might pan out as we head into the summer and into autumn.

Source: mortgage news from Karen Noye, mortgage expert at Quilter, Extranet.