Halifax’s House Price Index shows house prices have fallen 1% in the year to May – the first annual drop since 2012.
Halifax’s data corroborates recent house price data from Nationwide. Although their methodologies and price changes differ, both organisations are recording declines in the average UK house price on an annual basis.
Rising mortgage rates and the cost of living crisis have eroded confidence in the housing market. Adding fuel to the fire, The Bank of England is expected to hike rates again this year and have lenders reacted by increasing mortgage rates. Analysts at interactive investor suggest we could see further declines this year.
“It is becoming increasingly clear that the resilience of the property market in the first quarter of the year was a flash in the pan, with the impact from the affordability squeeze from high mortgage rates and high inflation filtering through. The constrictions imposed by affordability culminate in a diminished pool of buyers capable of participating in the market, exerting downwards pressure on price growth,” said Myron Jobson, Senior Personal Finance Analyst, interactive investor.
“The recent rises in the mortgage rates which has seen rates climb by 0.4% within a fortnight could further fuel further declines in house prices in the coming months.”
Stubbornly high inflation rates are to blame for the latest bout of uncertainty around borrowing costs. UK inflation was higher than expected in May, which caused a repositioning in market pricing of interest rates.
“This is far from over,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.
“Core inflation sent shockwaves through the mortgage market at the end of May, and we’re still feeling the effects as major lenders bump up prices.
“The market now expects rates to be higher for longer, which means fixed rate mortgage prices are increasing. Today Halifax will push up rates on its two-and five-year fixed rate deals, which is likely to depress prices even further in the coming months.”
