Following a year of exceptionally strong growth, UK house prices fell last month for the first time since June 2021, albeit marginally (-0.1%).

This left the average house price at £293,221, down £365 from the previous month’s record high.

The rate of annual inflation eased slightly (to +11.8%), although it’s important to note that house prices remain more than £30,000 higher than this time last year.

Vincent Burch – MPU
  • Average house price: £293,221
  • Monthly change: -0.1%
  • Quarterly change: +3.3%
  • Annual change: +11.8%

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.

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 against a backdrop of exceptionally high house price-to-income ratios.

That said, some of the drivers of the buoyant market we’ve seen over recent years – such as extra funds saved during the pandemic, fundamental changes in how people use their homes, and investment demand, still remain evident.

The extremely short supply of homes for sale is also a significant long-term challenge but serves to underpin high property prices.

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.

Therefore a slowing of annual house price inflation still seems the most likely scenario, said Russell Galley, Managing Director, Halifax.

Buyer type and property type

First-time buyer annual inflation dropped noticeably to 10.7% in July, from 12.4% in June, and continues to be outstripped by price rises seen for home-movers (+12.0% in July, down from +12.5%).

It remains the case that price gains for bigger houses are noticeably outpacing those for smaller homes.

The price of a detached house has leapt by £60,860 (+15.1%) over the last year, compared to £11,962 (+7.7%) for flats.

Regions and nations house prices

Wales has moved back to the top of the table for annual house price inflation, up by +14.7%, with an average property price of £222,639.

It’s closely followed by the South West of England, which also continues to record a strong rate of annual growth, up by +14.3%, with an average property cost of £310,846.

The rate of annual growth in Northern Ireland eased back slightly to +14.0%, with a typical home now costing £187,102.

Scotland too saw a slight slowdown in the rate of annual house price inflation, to +9.6% from +9.9%.

A Scottish home now costs an average of £203,677, another record high for the nation.

While London continues to record slower annual house price inflation than the other UK regions, the rate of +7.9% is the highest in almost five years.

With an average property now costing £551,777 the capital’s already record average house price continues to push higher, up by £40,361 over the last year.

It remains by far the most expensive place in the country to buy a home.

HMRC monthly property transactions data shows UK home sales decreased in June 2022.

UK seasonally adjusted (SA) residential transactions in June 2022 were 95,420 – down by 7.9% from May’s figure of 103,650 (down 3.1% on a non-SA basis).

Quarterly SA transactions (April-June 2022) were approximately 4.6% lower than the preceding three months (January 2022 – March 2022).

Year-on-year SA transactions were 54.3% lower than June 2021 (55.1% lower on a non-SA basis). (Source: HMRC)

Latest Bank of England figures show the number of mortgages approved to finance house purchases fell in June 2022, by 3% to 63,726.

Year-on-year the June figure was 21% below June 2021. (Source: Bank of England, seasonally-adjusted figures)

The latest RICS Residential Market Survey shows a modest decline in buyer demand during June.

The net balance score for new buying enquiries was -27%, down from -9% previously, the second consecutive month in negative territory.

Agreed sales have a net balance of -13% (-5% previously) and new instructions returned a net balance score of -1 (previously zero). (Source: Royal Institution of Chartered Surveyors’ (RICS) monthly report)

Tom Bill, head of UK residential research at Knight Frank, said:

“Negligible monthly declines in house price growth will get steeper.

Mortgages have become noticeably more expensive in recent months, which will dampen demand as cheaper offers made earlier this year expire and people roll off fixed-rate deals.

At the same time, supply has built as the distortions of the pandemic and stamp duty holiday fade, which will put downwards pressure on prices.

The Bank of England’s latest set of economic predictions will impact sentiment, as they did in May, but the fundamentals of the property and labour market are strong and we would expect double-digit annual growth to become single-digit growth by the end of the year.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says:

“It’s not so much yesterday’s sharp uplift in interest rates but the prospect of even higher rises and inflation which is starting to slow house price growth.

However, the Halifax figures, although comprehensive, reflect activity of the lender’s mortgage holders from earlier this year and of course the continuing shortages of stock.

That is why surveys like these and others out this week take so long to highlight the change which we noticed in our offices several months ago.

However, we are still not expecting a major correction while demand remains unsatisfied, rents at such a high level and employment so strong.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, says:

“Although we are well into summer, there is still plenty of activity in the housing market with people keen to move, although rising interest rates may temper the ambitions of some as to what they can afford.

Mortgage rates continue to rise and given the latest half-point rate rise from the Bank of England, that trend is unlikely to change in the short term at least.

Borrowers are more motivated than ever to secure a fixed-rate mortgage to protect themselves from further rate rises but have to move quickly as lenders continue to reprice at short notice, primarily in an effort to maintain service levels.”

Tomer Aboody, director of property lender MT Finance, says:

“With the first price fall in over 12 months, the slowdown which was expected is seemingly coming to fruition.

Higher mortgage rates, increasing inflation and higher cost of development is affecting buyer demand.

They are still there but at a more conservative level.

Although there is a monthly price fall, this is marginal and house prices are still at record levels, running away from buyers.

With fewer sellers and buyers, a continued slowdown is expected.

Will the government try to rally the market again with a re structure of stamp duty or other measures, this could be an initiative for any new incoming prime minister?”

Anna Clare Harper, director of real estate technology platform IMMO, says:

“House prices fell marginally in July but with annual growth of £31,021, even with a slight cooldown, houses on average made more than the average person at circa £25,000.

The annual growth figure is more relevant than monthly changes, since housing transactions are slow.

The explanation lies in demand: fewer transactions and mortgage approvals indicate that the heat of demand is cooling slightly.

This slight cooldown will be welcome by those struggling with affordability constraints, since the average house price remains over 10 times average annual individual earnings.

The trouble is, we still have an acute shortage of properties for sale and rent which are affordable, in the places people want and need to live, and of good quality.

New home supply is constrained by planning backlogs from lockdown, labour and material shortages and inflationary pressures, including 20%+ annual construction price inflation, throughout the value chain.

Existing homes are needing to be upgraded to align with Minimum Energy Efficiency Requirements before they can be rented out, triggering an exodus of landlords.

The result is a lack of affordable housing options.

This problem gets worse each month that house price growth continues to outpace wage growth. This makes the provision of quality rental housing even more important.”

Simon Gerrard, Managing Director of Martyn Gerrard Estate Agents and Abbeytown Ltd, commented:

“The most important word in the housing market is affordability and, what these figures don’t show, is it’s falling for the overwhelming majority of people.

Buyers are being forced to drink a lethal cocktail of spiralling household bills and interest rate hikes which, put simply, reduces what they can afford.

The ongoing under-supply of housing is the only thing that’s underpinning prices – but if interest rates reach anywhere near 7%, as widely predicted under a Liz Truss government, everything changes.

The fact that housing policy isn’t higher up the agenda of both Prime Ministerial candidates is borderline criminal.

While it may not be an immediate vote winner, the reform of our antiquated planning regulation would at least start to get Britain building the new homes we so desperately need.”

Walid Koudmani, chief market analyst at financial brokerage XTB, comments:

UK house prices fell for the first time in over a year last month, falling 0.1% month on month.

Of course the headline will read that this is the first monthly drop in UK house prices but in reality its a very marginal drop and on an annual basis house price growth remains at 11.8%.

It is inevitable that UK house prices will be affected by rising interest rates and the cost of living crisis – which looks set to deteriorate further with inflation peaking above 13% and UK energy prices set to worsen in the coming months.

This will severely impact demand for both mortgages and UK houses.

Yet still, the UK labour market remains very strong and its possible UK interest rate rises may not be as aggressive as initially feared due to the Bank of Englands concerns about UK economic activity.

That may give the UK housing market some relief. Yet make no mistake, 2023 looks like it could be a challenging year for UK house prices.”

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