In a significant development for the UK housing market, house prices have seen a year-on-year contraction for the first time in more than a decade. The mortgage provider Halifax reported a 1% decrease in property prices in May 2023 compared to the same period last year, marking the first annual fall since December 2012.
Kim Kinnaird, the director at Halifax Mortgages, attributed the decline to the impact of higher interest rates. She further noted that the market anticipates additional rate increases, which are expected to impact confidence in the housing market going forward. The average property prices, according to Halifax’s report, have fallen by approximately £3,000 over the past twelve months and are now £7,500 lower than their peak in August. Despite this decline, prices remain £5,000 higher since the end of last year and £25,000 above the levels recorded two years ago, which reflects the surge in property values during the pandemic.
Halifax’s findings align with the observations made by another major mortgage lender, Nationwide, which reported a 3.4% annual decrease in UK house prices in May, the largest drop recorded since 2009. The decrease in house prices comes at a time when mortgage rates have risen sharply, impacting buyer affordability. Halifax itself, part of Lloyds Banking Group, is raising its mortgage rates in response to higher borrowing costs. The expectation of further rate hikes by the Bank of England due to persistently high inflation has also contributed to reduced confidence in the housing market.
These recent developments indicate a notable shift in the UK housing market, emphasizing the challenges posed by higher mortgage rates and inflationary pressures. As the housing market adjusts to changing conditions, both buyers and sellers will need to navigate the evolving landscape with caution.