UK house prices have experienced their first annual fall in more than a decade, according to Halifax, in a sign that the impact of soaring interest rates on household budgets has brought a halt to the country’s long housing boom.
The price of the average home last month was 1.1% lower in May than in the same month last year, marking the first time that prices have fallen year-on-year on the lender’s monthly report since December 2012.
The slump in the market has been precipitous over the past year – last summer Halifax had the annual rate of growth was running at more than 12% – as rampant inflation, which remains at 8.7%, and 12 increases in a row in the UK base interest rate wreak havoc on the mortgage market.
“As expected, the brief upturn we saw in the housing market in the first quarter of this year has faded, with the impact of higher interest rates gradually feeding through to household budgets, and in particular those with fixed rate mortgage deals coming to an end,” said Kim Kinnaird, the director at Halifax Mortgages.
“This will inevitably impact confidence in the housing market as both buyers and sellers adjust their expectations.”
The monthly change in the average price of a UK home remained almost flat in May at £286,532, the lender said – in April they fell 0.4% compared with March – with prices down about £7,500 on average compared with last summer’s peak.
Kinnaird also noted the impact of the slowdown in the number of mortgage approvals, with lending collapsing to the lowest monthly level on record, and the drop in the number of completed transactions as stark signs of a cooling of demand in the market.
“Further downward pressure on house prices is still expected,” said Kinnaird. “With consumer price inflation remaining stubbornly high, markets are pricing in several more rate rises that would take the base rate above 5% for the first time since the start of 2008. Those expectations have led to fixed mortgage rates to start rising again across the market.”
More than 100,000 households are due to come to the end of their fixed-rate deals this month, according to the Financial Conduct Authority. Homeowners are facing the stark choice of choosing deals with hefty rates or face soaring costs by being moved on to their existing lender’s standard variable rate.
As lenders continue to increase borrowing rates and pull deals record numbers of buyers are taking out loans of more than 35 years in an attempt to make monthly payments more affordable.
A record 19% of all loans taken out by first-time buyers in March were for terms of 35 years or longer, with more than half taking a loan of more than 30 years, as house-hunters seek to make the soaring cost of loans more affordable. This is the highest proportion since records began in 2005.
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“Mortgage borrowers on the whole, other than perhaps some first-time buyers, can still afford a mortgage but just have to be prepared to put their hand in their pocket a bit more,” said Gareth Lewis, managing director at property lender MT Finance.
“Those who are willing to buy are less bullish when it comes to committing to higher house prices because everything is costing more. The housing market will inevitably be quieter as a result.”
Halifax’s figures come after a separate index from Nationwide Building Society reported in March that UK house prices had dropped at their fastest annual rate since the aftermath of the financial crisis in 2009, sliding 3.1% to £257,122 over a year.
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