Is the UK Property Market Doomed? Find Out Why Experts Say It’s Slowly Crashing.

In the latest Halifax House Price Index for May, house prices were broadly unchanged in May, down very slightly (-£130) compared to April, and the average UK property now costs £286,532.

Most notably, the annual growth rate fell to -1.0%, marking the first time since 2012 that house prices have fallen year-over-year.

Given the effectively flat month, the year-over-year decline largely reflects a comparison to the strong house prices this time last year, as the market continued to be buoyant heading into the summer.

Property prices have now fallen by around £3,000 in the last 12 months and are down around £7,500 from the peak in August.

But prices are still £5,000 higher than at the end of last year, and £25,000 above the level of two years ago.

Unsurprisingly, the brief rebound we saw in the housing market in the first quarter of this year has faded, with the impact of higher interest rates gradually trickling down to household budgets, and particularly to those with fixed-rate mortgage deals that are coming to an end, said Kim Kinnaird, principal of Halifax Mortgages.

With consumer price inflation remaining stubbornly high, markets are pricing in several more rate increases that would push the base rate above 5% for the first time since early 2008.

Those expectations have led to fixed mortgage rates starting to rise again across the market.

This will inevitably affect confidence in the housing market as both buyers and sellers adjust their expectations, and the latest industry figures for both mortgage approvals and completed transactions show demand cooling.

Therefore, more downward pressure on house prices is still expected.

A continuing source of support for house prices is the labor market.

While unemployment has recently risen from very low levels, strong wage growth would help improve housing affordability over time, if sustained.

median home price	monthly change	quarterly change	annual change
£286,532	0.0%	+1.3%	-1.0%

Buyer and property types

Prices remain under the most pressure among removal companies.

Annual growth fell -1.1% in May, compared to ongoing marginal inflation for first-time buyers (+0.3%).

Existing home values ​​continued to fall (-1.9% annual growth), while new-build property prices continue to rise (+2.8%), albeit at the lowest rate in almost three years.

By type of dwelling, all except single-family dwellings (+0.4%) have registered interannual decreases.

The greatest decrease occurred in flats (-1.9%), followed by semi-detached (-1.0%) and semi-detached (-0.5%).

House prices in nations and regions

Prices continue to fall on an annual basis in the South of England, again led by the South East (-1.6%, average price £385,943) and closely followed by the South West (-1.4%, average price £301 079).

In Greater London, prices have fallen by -1.2% over the past year (median price £536,622).

With the exception of Wales (no change at +1.1%, average price £218,365), all areas of the UK have seen annual house price growth weaken in May compared to April, and most now records a low single-digit property price inflation rate.

The West Midlands (+2.7%, median price £251,137) remains the best performing region, followed by Yorkshire & Humberside (+2.3%, median price £205,035).

Scotland (average price £201,596) saw annual growth slow to +1.3% (from +2.2% in April).

In Northern Ireland (average price £187,334) growth was +1.5% over the past year (versus +2.7% in April).

housing activity

HMRC’s monthly property transaction data shows that UK home sales declined in April 2023.

UK seasonally adjusted (SA) residential transactions for April 2023 totaled 82,120, down 7.9% from the March figure of 89,210 (29.2% down on a non-SA basis).

SA’s quarterly transactions (Feb 2023 – Apr 2023) were approximately 11.6% lower than the prior three months (Nov 2022 – Jan 2022).

SA transactions year-over-year were 25.1% lower than April 2022 (32.5% lower on a non-SA basis). (Source: HMRC)

The latest figures from the Bank of England show that the number of mortgages approved to finance home purchases decreased by 5.4% in April 2023 to 48,690.

Year-over-year, the April figure was 26.0% lower than April 2022. (Source: Bank of England, seasonally adjusted figures)

The results of the RICS Residential Market Survey for April 2023 continue to show weak momentum in the sales market.

Inquiries from new buyers returned a net balance of -37%, down from -30% in each of the last two months.

Agreed sales netted -19% (vs -30% previously) and new instructions netted -4% (vs -6%). (Fountain: Monthly report of the Royal Institution of Chartered Surveyors (RICS))

Tom Bill, Head of UK Residential Research at Knight Frank, comments:

“This is unlikely to be the last national home price index to fall into negative territory this year. Mortgage rates will continue to rise as wage growth keeps core inflation stubbornly high and we expect prices to fall by about 5% this year.

However, this is not the second part of the global financial crisis for house prices and any decline will be held in check by rising wages, low unemployment, cash sales, record levels of home equity , the longer mortgages and the savings accumulated during the pandemic.

The UK property market is coming back to earth after three strong years, without falling off a cliff.”

Jeremy Leaf, North London estate agent and former RICS Residential Chairman, comments:

“Halifax, like the Nationwide numbers, excludes cash sales and reflects activity from a few months ago.

However, they confirm recent trends that a tentative market recovery is threatened by the prospect of further interest rate hikes and stubbornly high inflation.

However, the survey shows that prices are still considerably above what they were two years ago, so cash-rich and stock-rich buyers in particular are recognizing opportunities.

Many mortgage holders will also be relieved that their lenders built in a cushion of at least 2 or 3 percentage points from the start, provided of course their circumstances haven’t materially changed.

Mark Harris, CEO of mortgage broker SPF Private Clients, comments:

“Lenders continue to raise their mortgage rates, bringing out products with little or no notice in part in response to financing costs and in response to what other lenders are doing.

This will inevitably affect what buyers can afford, and in some cases they may put decisions on hold until things improve.

Swap rates, which underpin the price of fixed-rate mortgages, have settled since the inflation news triggered them.

If this continues, we would expect mortgage prices to be less volatile as well.

Borrowers approaching a new mortgage who are concerned about their options should seek the advice of a broker and consider reserving a rate for peace of mind.

If the rates drop before they need it, they could always go for a cheaper product.”

Gareth Lewis, managing director of property lender MT Finance, comments:

“These figures are not surprising, given the drop in transactions.

They also reflect that those who are willing to buy are less optimistic when it comes to committing to higher house prices because everything costs more, so they will lower the price.

Mortgage borrowers in general, aside from perhaps a few first-time homebuyers, can still afford a mortgage, but they just have to be prepared to put their hands in their pockets a little longer.

This is all part of what is essentially a re-education process; money is not free and you will have to pay more for it in the future.

As a result, the housing market will inevitably be quieter.”

Kate Anderson, deputy editor for personal finance comparison site search.comcomments:

Although house prices fell very slightly last month, the fact that hundreds of mortgage deals were pulled from the market last week as lenders look to raise rates yet again shows that there are no real winners in the situation. current.

First-time homebuyers may now have a hard time finding an affordable mortgage rate, and therefore may still not be able to buy despite reduced prices.

This will put more people at risk of being left with extraordinarily high rental rates, at a time when the cost of living is already through the roof and people are struggling to pay for basics like groceries and paying their bills.

With widespread speculation that the Bank of England is likely to hike rates again this month, house prices could continue to tighten under this pressure.

We probably haven’t seen the end of this decline in house prices yet.”

David Hannah, President of Cornerstone Group International, discusses the effect of rising rates on the real estate market:

“The latest Halifax house price data, highlighting that house prices have experienced their first annual decline since 2012, will be good news for homebuyers and first-time buyers in particular.

However, there are still significant hurdles when looking to buy a home.

A rise in mortgage rates due to stronger-than-expected inflation numbers is unpleasant news for homeowners.

However, I think the housing market has shown significant resistance recently, and I have a positive outlook for the rest of the year.

Prices are beginning to stabilize, which will hopefully boost lender confidence.

Of course, lenders will adjust rates according to interest rates, but if they see inflation moving in the right direction, that will be crucial.”