UK house prices record first annual fall since December 2012


UK house prices registered the first annual contraction in more than a decade in May as prospective buyers were hit by higher mortgage rates, according to the lender Halifax.

Property prices were 1 per cent down last month compared with May 2022, the first annual fall since December 2012, data showed on Wednesday.

This comes as the Royal Institution of Chartered Surveyors warned on Thursday that expectations about further interest rate rises are likely to add downward pressure on the market in the months ahead.

Tarrant Parsons, an economist at RICS, said “storm clouds are gathered”, with stubbornly high inflation likely to prompt the Bank of England to take “further action through interest rate rises, leading to higher mortgage rates and ultimately reducing affordability and buyer demand”.

Higher interest rates could damp the positive trend that led the RICS house price index to improve to minus 30 in May from a recent low of minus 46 per cent in February. The survey measures the difference between the percentage of surveyors seeing rises and falls in house prices.

The BoE said the average rate for new mortgages rose to 4.5 per cent in April, the highest since 2008. Markets expect the central bank to raise interest rates again at the next monetary policy meeting on June 22 — from 4.5 to 4.75 per cent — and are pricing in a move above 5 per cent by the end of the year.

“This will inevitably impact confidence in the housing market as both buyers and sellers adjust their expectations,” said Kim Kinnaird, director at Halifax Mortgages, who also expects “further downward pressure on house prices”.

Tom Bill, head of UK residential research at Knight Frank, forecasts that prices will fall by about 5 per cent this year as “mortgage rates will keep edging up as wage growth keeps core inflation stubbornly high”.

However, he noted that unlike during the financial crisis in 2008-09, the fall in prices would be limited by rising wages, low unemployment, longer mortgages and savings amassed during the Covid pandemic.

Halifax reported that average property prices had fallen by about £3,000 during the past 12 months and were down about £7,500 from their peak in August. However, prices were still £5,000 up since the end of last year, and £25,000 above the level of two years ago, reflecting the pandemic boom.

The annual drop was driven by existing houses and flats, both down 1.9 per cent, according to Halifax. Terraced and semi-detached houses registered a smaller drop at 1 per cent and 0.5 per cent, respectively, while prices of detached houses were marginally up by 0.4 per cent.

Southern England was the worst-performing area, with the South East, the South West and Greater London reporting annual contractions of 1.6 per cent, 1.4 per cent and 1.2 per cent respectively. Instead, the West Midlands continued to be the best performing region with an annual increase of 2.7 per cent.

Earlier this month, the mortgage provider Nationwide reported UK house prices falling by an annual rate of 3.4 per cent in May, the largest drop since 2009. 

Myron Jobson, senior personal finance analyst at investment platform Interactive Investor, said: “The mortgage affordability squeeze not only impacts the dreams of aspiring homeowners but also reverberates throughout the housing market.”