The UK Housing Market Shows Signs of Resilience Despite Falling House Prices
The latest index from Halifax reveals that the average home in the UK now costs £285,044. While house prices have experienced a decline of 2.4% in the year leading up to July, this is less than the 2.6% drop recorded in June, which marked the largest annual decline in over a decade. Despite the consecutive decline in house prices for the past four months, there are indications that the market is showing resilience.
Halifax reports that activity among first-time buyers remains relatively strong, and there are signs that borrowing costs are stabilizing or even decreasing. Although prices are expected to continue decreasing throughout the year, the decline is predicted to be gradual rather than sudden.
According to Halifax’s director of mortgages, Kim Kinnaird, the current figures suggest that house prices have remained relatively unchanged over the past six months. She also notes that first-time buyers are adapting to higher borrowing costs by searching for smaller homes.
However, the buy-to-let sector appears to be under pressure, and it remains uncertain how many landlords may choose to exit the market. Mortgage affordability remains stretched for many due to high-interest rates. The Bank of England recently raised rates to 5.25% in an effort to combat inflation, and it is expected that rates will remain high for a longer period than previously anticipated.
Despite these challenges, there was a larger than expected drop in inflation in June, and borrowing costs are now stabilizing or even falling. However, mortgage rates are likely to remain significantly higher than in previous years.
Ms. Kinnaird acknowledges that the continued affordability squeeze will result in constrained market activity, and house prices are expected to continue falling into the next year. Based on current economic assumptions, the decline is predicted to be gradual rather than sudden.
Imogen Pattison, an assistant economist at Capital Economics, describes the recent drop in house prices as modest but warns that prices could continue to fall and accelerate into 2024. Tight supply conditions are easing, and the significant rise in mortgage rates is expected to cause a renewed slump in demand.
Earlier this month, Nationwide reported the largest fall in house prices in 14 years on its separate index. Annual property values declined by 3.8% in July, marking the sharpest fall since July 2009.
Despite the challenges faced by the UK housing market, there are signs of resilience, particularly among first-time buyers. While house prices are expected to continue falling, the decline is predicted to be gradual rather than sudden. The market will continue to be influenced by factors such as mortgage affordability and borrowing costs.