Halifax House Price Index: Housing Market Displays Resilience

Average UK house prices edged down slightly in July, with the monthly fall of -0.3% equivalent to a drop of around £1,000 in cash terms.

While this was the fourth consecutive monthly decrease, all have been smaller than -0.5%.

In reality, prices are little changed over the last six months, with the typical property now costing £285,044, compared to £285,660 in February.

The pace of annual decline also slowed to -2.4% in July, versus -2.6% in June.

These figures add to the sense of a housing market which continues to display a degree of resilience in the face of tough economic headwinds.

In particular, we’re seeing activity amongst first-time buyers hold up relatively well, with indications some are now searching for smaller homes, to offset higher borrowing costs, said Kim Kinnaird, Director, Halifax Mortgages.

Kinnaird continued, conversely the buy-to-let sector appears to be under some pressure, though elevated interest rates are just one factor impacting landlords’ business models, together with considerations of future rental market reforms.

It remains to be seen how many may choose to exit and what that could mean for the supply of properties available to buy.

Prospects for the UK housing market remain closely linked to the performance of the wider economy.

Several factors are providing support, notably strong wage growth, running at around +7% annually.

And, while the uptick in unemployment is likely to restrain that somewhat, it seems unlikely to reach levels that would trigger a sharp deterioration in conditions.

Expectations of further Base Rate increases from the Bank of England were tempered by a better-thanexpected inflation report for June. However, while there have been recent signs of borrowing costs stabilising or even falling, they will likely remain much higher than homeowners have become used to over the last decade.

The continued affordability squeeze will mean constrained market activity persists, and we expect house prices to continue to fall into next year. Based on our current economic assumptions, we anticipate that being a gradual rather than a precipitous decline.

And one that is unlikely to fully reverse the house price growth recorded over recent years, with average property prices still some £45,000 (+19%) above pre-Covid levels, Kinnaird concluded.

Nations and regions house prices

Average house prices fell on an annual basis in almost all parts of the UK in July, with the only exception being the West Midlands (+0.0%, average house price of £250,285), where they remained effectively flat.

The South East remains the area where house prices are facing the most downward pressure.

Down -3.9% on an annual basis, just over £15,500 has been taken off the value of a typical property in the region over the last year (average house price now £382,489).

Greater London mirrors that trend, with average property prices down by -3.5% annually in the capital (average house price now £531,141).

Wales – home to some of the most rapid growth in house prices witnessed during the pandemic ‘boom’ – experienced a -3.3% reduction on an annual basis (average house price now £214,495).

In Scotland, prices were down by less, at -0.7% over the last year (average house price of £201,501) while in Northern Ireland they were down by just -0.3% annually (average house price of £185,322).

Housing activity

HMRC monthly property transaction data shows UK home sales increased in June 2023.

UK seasonally adjusted (SA) residential transactions in June 2023 totalled 85,870 – up by 6.1% from May’s figure of 80,960 (up 28.3% on a non-SA basis).

Quarterly SA transactions (April 2023 – June 2023) were approximately 8.1% lower than the preceding three months (January 2023 – March 2023).

Year-on-year SA transactions were 15.4% lower than June 2022 (8.8% lower on a non-SA basis). (Source: HMRC)

Latest Bank of England figures show the number of mortgages approved to finance house purchases increased in June 2023, by 6.9% to 54,662.

Year-on-year the June figure was 13.5% below June 2022. (Source: Bank of England, seasonally-adjusted figures)

The RICS Residential Market Survey results for June 2023 show key metrics slipping further into negative territory.

New buyer enquiries returned a net balance of -45%, down from -20% in May, agreed sales -34% (down from -8% previously) and new instructions -1% (previously +14%). (Source: Royal Institution of Chartered Surveyors’ (RICS) monthly report)

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

“A growing expectation that inflation and interest rates are nearing their respective peaks, combined with continuing strong employment, are all helping to underpin activity.

Affordability is still a concern, especially for those on tighter budgets, often buying smaller properties so the market remains price sensitive.

Nevertheless, sellers recognising the importance of proceedable buyers and that the illusive golden offer may not be achievable, are taking advantage.”

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

“The journey back to long-term rate normality has been fraught and put downwards pressure on house prices and sales volumes over the last year.

The previous government went too far, too fast for financial markets and the Bank of England has been accused of doing too little too late.

However, some lenders are cutting mortgage costs as the bank rate nears its peak, which means that while sentiment will remain subdued, it should improve in the second half of this year.

While we expect UK prices to fall by 5% in 2023, demand should prove more resilient than expected given the shock-absorber effect of strong wage growth, lockdown savings, the availability of longer mortgage terms, forbearance from lenders and the popularity of fixed-rate deals in recent years.”

Kate Anderson, deputy editor and housing expert at personal finance comparison site finder.com gives her thoughts on what this means for the UK housing market:

“It’s worrying to see yet another decline in house prices this month, as the UK sits on the cusp of a housing market crash, the risks of which will have only been heightened by the most recent base rate hike which could push house prices down even further.

It’s likely that we’re going to face big issues with the buy to let market, and the impact that the rising cost of borrowing will have on renters.

Landlords may find it unprofitable to continue due to increasing interest rates and sell up, creating further downward pressure on house prices and leaving renters with even fewer options.

In fact, we recently polled a panel of experts on whether they believe a housing market crash is on the horizon for the UK following the most recent interest rate hike, and 40% of experts believe that it is.”

Anna Clare Harper, CEO of sustainable investment adviser GreenResi, comments:

“This price correction is partly caused by higher interest rates.

Housing policy has focused on homeowners’ needs, and on debt to fund new supply, for a long time. With higher interest rates, price growth is being corrected.

Socially, the most important consideration is not the house prices but the cause: higher interest rates mean higher monthly housing costs, for both homeowners and renters.

Higher housing costs are affecting affordability for at least 2 million households on variable rate mortgages or fixed rates coming to an end this year.

To save ‘Generation Rent’ from homelessness, professional investors are needed to acquire, upgrade and stabilise existing private rental sector homes.”

David Hannah, Chairman at Cornerstone Group International, discusses the effect of rising rates on the property market:

“The predictable downward trend in house prices comes as no surprise, given the lingering effects of rate uncertainty and affordability challenges in the market.

Prospective buyers are still caught between adopting a cautious approach and displaying heightened assertiveness while making property offers.

Nevertheless, there is a glimmer of hope as certain lenders are reducing mortgage expenses in response to the approaching peak of the bank rate.

This suggests that although market sentiment may remain restrained, I hold the belief that the second half of this year will witness an improvement.”

Managing Director of Barrows and Forrester, James Forrester, comments:

“The outlook has remained unchanged so far this year and while we’ve seen market uncertainty chip away at the previous high rates of pandemic house price growth, this decline has been largely insignificant.

House prices remain robust and while borrowing affordability remains a concern for many buyers, increasing interest rates are yet to deter them from their aspirations of homeownership.”

Director of Benham and Reeves, Marc von Grundherr, comments:

“The recent decline in house prices has been consistent, albeit marginal, but it’s important to remember that the comparison being made is to the heights of the pandemic boom seen this time last year.

When you consider this small detail, it’s actually quite remarkable that the market is still standing so strong given the wider economic picture.”

Managing Director of House Buyer Bureau, Chris Hodgkinson, comments:

“The overarching prediction for the property market in 2023 was a cooling rate of house price growth heading in the direction of a return to normality, not a collapse.

So far this year, that’s certainly what we’ve seen and, in fact, the reduction in house prices has actually been less severe than anticipated.

While other factors are proving more problematic for both buyers and sellers, such as the turbulence caused by the increased cost of borrowing, the market is standing firm at present.

Although it’s fair to say it’s been standing in the same spot for the last few months.”

Co-founder and CEO of Searchland, Mitchell Fasanya, comments:

“Despite the wider economic picture, the appetite for homeownership has remained strong and particularly amongst first-time buyers.

As a result, we’ve seen an ongoing commitment from the nation’s big housebuilders to deliver stock to market and this confidence bodes well for the year ahead and beyond.”

Managing Director of Sirius Property Finance, Nicholas Christofi, comments:

“The heightened cost of borrowing will continue to squeeze the purchasing power of the nation’s homebuyers, who have little choice but to offer less, or opt for smaller homes.

This will inevitably cause house prices to cool further over the coming months, however, this will come in the form of a gradual reduction, not a cliff edge.”