UK house prices fall 2.6% in biggest annual drop since 2011

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UK house prices fell in June at the fastest annual pace since 2011 as the rise in mortgage rates hit the property market, mortgage provider Halifax said.

Halifax reported on Friday that the average UK property price was down 2.6 per cent in June compared with the same month last year, and more than double the drop of 1.1 per cent in May, marking the largest such fall since June 2011.

Kim Kinnaird, director at Halifax Mortgages, said that “the housing market remains sensitive to volatility in borrowing costs”.

Compared with the previous month, house prices were down 0.1 per cent, taking the average to £285,932.

Martin Beck, chief economic adviser to the EY Item Club, said that “given the scale of previous price gains and the headwinds facing the housing market from rising mortgage rates and other financial pressures, house prices continue to display a surprising degree of resilience”.

The Bank of England in May increased interest rates for the 13th consecutive time to 5 per cent, the highest in 15 years. With persistent high inflation and hot wage growth, markets are pricing in UK interest rates hitting 6.5 per cent by March 2024 — which has pushed mortgage rates to their highest levels since the financial crisis.

Halifax’s Kinnaird said the resulting squeeze on affordability will inevitably act as a brake on demand in the UK housing market, “as buyers consider what they can realistically afford to offer”. He added that while there was a lag effect when rates go up, many existing mortgage holders with variable-rate loans or rolling off fixed-rate deals would face an increase in payments in the next year.

Halifax also revealed that prices of existing properties, which had been driving the market up during the pandemic, were down 3.5 per cent year on year in June, the steepest decline since August 2009.

In contrast, prices of new build properties were up 1.9 per cent annually.

House prices in the West Midlands, Yorkshire & Humberside and Northern Ireland stagnated or rose marginally, while all other regions reported an annual fall.

The South of England registered the steepest annual fall at 3 per cent. London recorded an annual decline of 2.6 per cent, its weakest performance since October 2009 and a drop of about £15,000 over the past year.

Data from the mortgage provider Nationwide last week showed that house prices ticked up 0.1 per cent between May and June, but still contracted at the fastest pace since 2009 when compared with June last year.

Adam Smith, founder of Northampton-based Alfa Mortgages said: “The immense strain being put on people’s finances will almost certainly send prices lower during the months ahead.”