House prices fall slightly but fears of worse to come

The average UK house price experienced a slight fall in September of 0.1 per cent, the second  decrease over the past three months. 

The Halifax says the cost of a typical home edged down a little to £293,835 from the previous month’s record high (£293,992). 

The pace of annual growth also slowed for the third month in a row, to 9.9 per cent from 11.4 per cent, returning to single-digits for the first time since January.

Halifax Mortgages director Kim Kinnaird says: “The events of the last few weeks have led to greater economic uncertainty, however in reality house prices have been largely flat since June, up by around £250. This compares to a rise of more than £10,000 during the previous quarter, suggesting the housing market may have already entered a more sustained period of slower growth. 

“Predicting what happens next means making sense of the many variables now at play, and the housing market has consistently defied expectations in recent times. 

“While stamp duty cuts, the short supply of homes for sale and a strong labour market all support house prices, the prospect of interest rates continuing to rise sharply amid the cost of living squeeze, plus the impact in recent weeks of higher mortgage borrowing costs on affordability, are likely to exert more significant downward pressure on house prices in the months ahead. 

“This will undoubtedly be a cause of some concern for homeowners, but the unprecedented rate of property price inflation we’ve seen in recent years has been far above the historic average. It’s important to look at slower growth in this context – since the start of the pandemic average property values have risen by around 23 per cent (almost £55,000) with detached house prices up by more than £100,000 over the same period.” 

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says this price fall does not yet reflect the full impact of the recent economic turmoil. 

“The chaos unleashed on the mortgage market last month will take its toll towards the end of the year and into the beginning of 2023. Rapidly rising interest rate expectations have pushed up mortgage costs so dramatically that we can expect it to depress demand. It will force some people to think twice about whether they can afford the home they need, and while others will still be keen, they may struggle to find someone willing to lend to them” she says. 

“Those who are remortgaging may also run into difficulties if their rate has shot up, and over time we are likely to see more people being forced to sell up and downsize. The sudden withdrawal of mortgages and the overnight hiking of rates also came as a horrible shock to homeowners and buyers. 

“Without positive sentiment, it’s far more difficult to see the market defying the cost-of-living crisis. There are still some forces helping to hold prices up, including low stock levels, a robust labour market and stamp duty cuts. But despite all of them, it’s hard to see the market not softening from here, and the risks of house price falls have risen significantly.

“Of course, the lag in the sales process means we may not see this feed into the figures for weeks. Mortgage approvals for future purchases rose in August, so those sales will still need to filter through. However, it’s more likely than ever that the market may be entering its Wile E Coyote phase, as it treads water in mid-air and looks down.”

Nathan Emerson, chief executive of letting and sales agents’ body Propertymark, adds: “As we can now see, buyers coming to the market are being much more sensible with their cash and budget decisions and are analysing the market and taking their time in moving so we will continue to see this being reflected in the prices being achieved.

"Our member agents have told us that they are seeing mortgage in principle offers expire before the completion of a property. Due to interest rate rises, this is then causing some buyers monthly payments to increase and is showing signs of re-negotiations.

"With prices inflating over 20 per cent in the last two years, witnessing a decrease isn't as majorly concerning as it sounds."

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