The Halifax says house prices were flat in May, but fell 1.0 per cent in a year – the first annual fall recorded by this index since December 2012.
The average property now costs £286,532. This is down £3,000 in a year and £7,500 from the peak in August 2022. However prices are still £25,000 above their level two years ago.
Prices in the south of England have fallen furthest over the year – with the South East down 1.6 per cent and the South West falling 1.4 per cent. New builds and detached houses were the only property types to avoid annual declines. Flats are down 1.9 per cent.
All signs are pointing south for the property market. Prices are down in a year, and although they remained flat in May, this is the first month that the Halifax has measured annual falls.
Unfortunately for sellers, this reflects the weakness that had crept into the market before the impact of higher rates had been passed onto Halifax customers – which is happening today. It means the pain is unlikely to be over yet.
There were some very small rises in mortgage rates at this stage, but nothing to frighten the horses, so it’s unlikely to have been mortgage rates driving the fall in house prices in May. Instead, it owes a great deal to the fall in demand.
The Royal Institution of Chartered Surveyors has charted a relentless drop off in demand and agreed sales for months. It was down again in April, which is likely to have fed into lower prices of transactions in May. The Bank of England announced that mortgages approved for house prices in the coming months also dropped over 5.0 per cent in April, which means that even without the hike in mortgage rates we were expecting a seriously sluggish summer.
This is far from over.
Core inflation sent shockwaves through the mortgage market at the end of May, and we’re still feeling the effects as major lenders bump up prices. The market now expects rates to be higher for longer, which means fixed rate mortgage prices are increasing.
Halifax has pushed up rates on its two-and five-year fixed rate deals, which is likely to depress prices even further in the coming months.
The fact that so much of the mortgage market is fixed means this will take some time to feed into the property market – and then some time to feed out again. It’s why Oxford Economics has predicted house prices will continue to fall for longer – to the autumn of 2025, and not recover to 2022 levels until 2028.
On the flip side, it means they’re expecting annual falls to be smaller than in previous downturns, with declines of around 4.3 per cent a year in the last three months of this year, 4.1 per cent by the end of next year, and then a 1.1 per cent drop in 2025.
No forecast is ever guaranteed, but for those who are buying and selling at the moment, the risk that prices could remain weaker for years should factor into your plans. For some people it’s not enough to put them off. Making a decision about where you live comes down to more than just price. It lies at the heart of how you live too, and for some people that means it’s worth paying today’s price, even if it’s worth less for the next five years. If you’re buying somewhere for the long term at a price you can afford, then this isn’t a reason to stop.
However, for anyone overstretching themselves or considering a move somewhere they won’t be happy for the long term, it will give them a reason to pause. Playing the wait and see game is always a risk when you’re buying a property, but for some people right now it will be a risk worth taking.
* Sarah Coles is head of personal finance at consultancy Hargreaves Lansdown *
