British house prices are falling as mortgage rates rise

LONDON – UK house prices fell at their fastest annual pace in 12 years in June as continued rising mortgage costs put further pressure on the property market.

House prices fell 2.6% in the year to June, their biggest decline since June 2011 and a sharp increase on the 1.1% annual fall recorded in May, according to the mortgage lender’s latest price index Halifax which was published on Friday.

Prices fell for the third consecutive month, slipping 0.1% from May. The average UK property now costs £285,932 (£364,490), down from a peak of £293,992 in August 2022.

Kim Kinnaird, director of Halifax Mortgages, said the annual decline belies a modest recovery in prices this year after the dramatic fallout from the UK’s “mini-budget” in October, when mortgage rates rose and real estate prices down.

“Average house prices are up +1.5% (£4,000) so far this year, with most of that growth coming in the first quarter, following the sharp fall in prices we saw at the end of last year,” she said.

However, she said that “the housing market is still sensitive to volatility in borrowing costs.”

Home owners and prospective buyers have been frustrated by rising borrowing costs over the past year as the Bank of England has tried to get a handle on sky-high inflation. .

The BOE raised interest rates for the 13th consecutive time in June, walking by a surprise 50 basis points and bringing the base rate to 5%. It came as UK headline inflation rose month-on-month in May.

High inflation and higher benchmark bank rates have pushed up UK sovereign gilt yields, which are used to price mortgages, prompting some lenders to raise rates or bundle special yields.

Sarah Coles, head of personal finance at Hargreaves Lansdowne, said the latest rate hike was not fully reflected in Friday’s housing data, possibly spelling more pain ahead for borrowers.

“Two-year fixed rates started June at just under 5.5% and five-year contracts at 5.1%, according to Moneyfacts, and ended the month at 6.4% and just shy of 6% respectively. All eyes will be on just how much damage can be done when new rates enter the figures,” Coles told CNBC.

Higher mortgage rates appear poised to put more downward pressure on the housing market, she said, with prices expected to fall further this summer.

“Sellers have already started cutting prices to move their properties. Zoopla figures showed that one in 20 took a cut in May, an average of 9%. Significant,” she said.

Liam Bailey, head of global research at Knight Frank, agreed, noting that “prices have fallen further in the domestic housing market. In its latest global housing index published on Wednesday, the property firm said UK house prices fell by 3.1% year-on-year in the first quarter.

“While first-time buyers will welcome lower prices, higher rates mean affordability will remain a stretch for most new market entrants,” he said.

The Bank of England is expected to continue its strong efforts to tame inflation with further increases throughout the rest of the year.

Market watchers now expect the all-time highs of 5.75% to 6% in November, although JPMorgan said Thursday that they could hit 7% “in some circumstances.” “

“Markets have continued to ramp up bets for higher Bank of England interest rates in recent days,” Matthew Ryan, head of market strategy at global financial services firm Ebury, said via email. “Swap rates now see a final BoE base rate of 6.5% by mid-2024 – a further 150 basis points hike.”

That means mortgage rates will rise further before coming down, adding to the pain for homeowners and further exacerbating the UK’s rental crisis as buy-to-let landlords giving tenants higher mortgage repayments or leaving the market altogether.

“With markets now forecasting a high of over 6% in Bank Rate, mortgage rates are likely to remain higher for longer, and the tightening of housing finance will continue to put downward pressure on house prices over the next year,” said Halifax’s Kinnaird. said.