UK house prices fell in July for the first time in more than a year, as the country’s largest lender warned of the impact of higher interest rates and the broader cost of living crisis.
The average price of a home was £293,221 in July, down 0.1% month on month, the first decrease since June last year, according to the latest report from Halifax.
The decrease pushed the annual rate of growth from 12.5% to 11.8%, although the average house price still remains more than £30,000 higher than at the same time last year.
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“While we shouldn’t read too much into any single month, especially as the fall is only fractional, a slowdown in annual house price growth has been expected for some time,” said Russell Galley, the managing director of Halifax.
“Leading indicators of the housing market have recently shown a softening of activity, while rising borrowing costs are adding to the squeeze on household budgets.”
However, Galley added that some of the factors that had driven rapid growth of the housing market during the pandemic remained. These include money saved during lockdown, and flexible and remote working practices allowing people to seek out more rural locations and spacious homes.
“Looking ahead, house prices are likely to come under more pressure as those market tailwinds fade further and the headwinds of rising interest rates and increased living costs take a firmer hold,” Galley said. “Therefore, a slowing of annual house price inflation still seems the most likely scenario.”
On Thursday, the Bank of England announced its biggest increase in interest rates in 27 years, in an attempt to curb soaring inflation as gas prices drive up UK energy bills this winter. The rise of 0.5 percentage points takes the UK base rate to 1.75%, a 13-year high, and was the sixth increase in a row.
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“The key housing market lead indicator, mortgage approvals, has fallen for the last five months in a row, which implies that housing market activity is easing,” said Anthony Codling, the chief executive of the property data firm Twindig. “While house prices may fall during the second half of 2022, we still expect house prices to be higher at the end of the year than they were at the start of it.”
Halifax said the strongest annual house price inflation was in Wales, up by 14.7%, with an average property costing £222,639.
That is closely followed by the south-west of England, with 14.3% and an average property costing £310,846.
There was a slight slowdown in Scotland, from 9.9% to 9.6%, with a typical home costing £203,677.
In Northern Ireland, there was an easing in the annual rate of house price inflation to 14%, with an average home costing £187,102.
Greater London recorded the slowest rate of annual growth of any region in the UK, at 7.9%, although it also has the highest average property cost at £551,777.
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Iain McKenzie, the chief executive of the Guild of Property Professionals, said the housing market has proved to be resilient in the past even as the economy has faced headwinds.
He added that the fundamentals of the market – the huge imbalance between demand for properties and sellers – coupled with increased mortgage rates and the cost of living squeeze meant homeownership would feel like “an uphill battle” for many first-time buyers.
Walid Koudmani, the chief market analyst at the financial brokerage XTB, said that while the market may well hold up this year, the longer-term outlook was now under pressure.
“Make no mistake, 2023 looks like it could be a challenging year for UK house prices,” he said.
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