If you had super ultrasonic hearing you may have been able to hear the sound of house prices falling gently for yet another month, the cumulative effect of which added up to the sharpest decline in over a decade.
Light as a feather
They drifted down in June, “like a feather”, said Sarah Coles, head of personal finance at Hargreaves Lansdown.
According to the Halifax House Price Index (HPI) house prices had a small fall of 0.1% in June but it was the third consecutive month in which they dropped. These things add up.
Consider this: house prices are now down 2.6% in a year – the largest annual fall for 12 years.
The average property now costs £285,932. This is down £8,000 from the peak in August 2022.
New-build property is still up 1.9% in a year but all other property types saw falls, with flats down 3.1% and terraced homes down 2.5%.
As is so often the case there has been a discernible north-south divide in the behaviour of property prices. Prices in the south of England have fallen furthest over the year – with the South East down 3% and London down 2.6%, its weakest since 2009.
Sarah Coles said the fact we’re seeing such stark annual figures owes more to the fact they were going up like a rocket 12 months earlier than to any major changes during the month itself.
But don’t imagine there aren’t other economic factors at play influencing the housing market. There have been 13 interest rate rises since December 2021 as the Bank of England battles to tame stubbornly high inflation and as a housing market downturn is also a function of how much more costly it has become to borrow money the rise in mortgage rates is likely to act like a lead weight on prices in the coming weeks, dragging them down with more urgency.
“Halifax said mortgage approvals held up reasonably well during the month, especially among-first time buyers. This followed a reasonably robust May, when the Bank of England said approvals as a whole were up 3.1% in a month,” Coles said.
She added: “However, it’s worth bearing in mind just how mortgage rates changed over the course of June. Two-year fixed rates started the month just under 5.5% and five-year deals at 5.1%, according to Moneyfacts, and they ended the month at 6.4% and just shy of 6% respectively.”
The effect of rate rises is not immediate, though, lagging some way behind. So the house sales in the HPI figures are chiefly from those who got themselves mortgages before the recent hiking of rates.
Market watchers will be paying close attention to the extent of the damage done to the housing market when new rates feed through into the figures.
Coles pointed out that the impact of remortgaging will be felt very gradually as people come to the end of their fixed-rate deal. However, it will hit new buyers far quicker. There will be buyers who have been priced out of the property they need, and those who have been spooked by the sudden change and put a purchase on hold.
Sellers have already started cutting prices to shift their properties. Zoopla figures showed one in 20 made a cut in May, averaging 9%, Coles noted.
So the effect of rate hikes is likely to add to the downward pressure on house prices and markets are expecting rates to rise still further.
Heavy as a stone
Coles added: “The summer is likely to see price cuts become even more widespread. Far from falling like a feather, demand could drop like a stone.”
