House prices in the UK fell by 4.6% on an annual basis in August, representing a fall of £14,000, marking the biggest year-on-year decrease since 2009, new data from Halifax revealed on Thursday.
However, mortgage lender Halifax said it was relative to the record-high property prices seen last summer.
On the month, prices dropped 1.9% compared to July with the average home now costing £279,569, down by around £5,000 – their steepest monthly decline since November 2022.
“It’s fair to say that house prices have proven more resilient than expected so far this year, despite higher interest rates weighing on buyer demand. However, there is always a lag-effect where rate increases are concerned, and we may now be seeing a greater impact from higher mortgage costs flowing through to house prices,” Kim Kinnaird, director at Halifax Mortgages, said in a press statement.
“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,” Kinnaird added.
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She also noted that there is always a seasonality effect at this time of year and said it is not surprising given the pace of mortgage rate increases over June and July.
“While these did ease last month, rates remain much higher compared to recent years. This may well have prompted prospective buyers to defer transactions in the hope of some stability, and greater clarity on the future direction of rates in the coming months,” she added.
The director of mortgages at Halifax said further downward pressure on prices is expected to the end of this year and into next, in line with previous forecasts.
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While any drop is not likely to be welcomed by current homeowners, Kinnaird said it is important to remember that prices remain some £40,000 (+17%) above pre-pandemic levels.
However, lower prices will offer some relief to those looking to get onto the property ladder with an opportunity to buy lower.
“Income growth has remained strong over recent months, which has seen the house price to income ratio for first-time buyers fall from a peak of 5.8 in June last year to now 5.1. This is the most affordable level since June 2020, and will be partially offsetting the impact of higher mortgage costs,” Kinnaird also said.
However, despite income growth, wages are still being squeezed to the max and the reality is that buying a property is likely to remain a challenge for most, as Alice Haine, personal finance analyst at Bestinvest, also highlighted.
“Mortgage rates may have eased, with the average two-year fixed rate now 6.7% – down from the July peak of 6.86% as interest rate expectations improve and lenders compete more aggressively for business – but that won’t solve the financial pain many prospective buyers and existing homeowners are already facing.”
The latest data from Halifax also comes after rival mortgage lender Nationwide reported last week that house prices in August were 5.3% lower than a year earlier.
Meanwhile, the Bank of England (BoE) has raised interest rates 14 times since December 2021, taking rates to 5.25% in August.
Yesterday, BoE governor Andrew Bailey said that rates were now much nearer their peak than before, although financial markets still expect a further increase to 5.5% this month and another rise after.
Watch: Bank of England governor Andrew Bailey says interest rate rises nearing peak
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