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Falls in House Prices Persist, but at a Slower Pace

The UK’s biggest mortgage lender, Halifax, has announced that house prices will continue to fall into the next year. While this might sound alarming, the rate of reduction has actually slowed down. In September, property prices were 4.7% lower than they were a year earlier. Although prices dropped by 0.4% compared to the previous month, this decline was much less severe than we’ve seen before.

High Interest Rates Impacting the Market

The main reason for this decline is the high interest and mortgage rates that are currently affecting the housing market. When interest rates rise, borrowing becomes more expensive, which can deter potential homebuyers. Kim Kinnaird, the director of Halifax Mortgages, highlighted that homeowners are becoming more realistic about their selling prices, recognizing that it’s now a buyer’s market.

Cash Buyers and Market Dynamics

It’s important to note that both Halifax and Nationwide surveys focus on mortgage lending data, excluding cash buyers and buy-to-let deals. Currently, cash buyers make up over a third of housing sales, indicating that there’s more to the market than what these surveys capture.

Continuous Decline in Prices

The decline in house prices during September marked the sixth consecutive monthly fall. As a result, the average price of a typical UK home has now reached £278,601. While this is a notable decrease, it’s still significantly higher, by £39,400, than it was in March 2020 when prices surged during the pandemic.

Buyer’s Advantage in a More Balanced Market

Nicky Stevenson, managing director at Fine and Country, explained that the housing market now offers a more significant supply of homes compared to the frenzied buying activity witnessed in 2021. This increased supply provides buyers with more choices and bargaining power during negotiations with sellers.

Mortgages and Long-Term Planning

Some first-time buyers might actually welcome falling prices, especially if they can secure longer-term mortgages to spread out the cost. However, this approach may result in higher overall expenses in the long run.

Mixed Predictions for the Future

House prices have fallen by approximately 5% annually for two consecutive months, according to data from Nationwide and Halifax. Additionally, sellers have been discounting their asking prices by an average of 4.2% in September, the highest level since 2019.

The Impact of Rising Mortgage Rates

Soaring mortgage rates have been a significant factor driving these price declines. The average two-year fixed mortgage rate has increased from around 2.3% in 2021 to 6.46% today. This rate hike has made it more expensive for buyers to secure mortgages and, in turn, has forced sellers to lower their prices to attract buyers.

Are House Prices Going Down?

In short, yes. Nationwide’s data indicates a 5.3% drop in average house prices in the year leading up to September 2023. Halifax’s data paints a similar picture, with prices falling by 4.7% in a year or 0.4% from the previous month. Rightmove’s data for September shows a 0.4% annual drop in average asking prices but a 0.4% monthly rise.

Factors Influencing the Market

Various factors, such as multiple Bank of England interest rate hikes, the cost of living crisis, and fluctuating fuel and energy prices, have put pressure on household budgets and affected housing market dynamics.

Predictions for the Future

Experts have differing forecasts for the extent of the housing market decline. Knight Frank predicts a 5% drop in 2023 and another 5% in 2024. Capital Economics, on the other hand, anticipates a 12% total fall by mid-2024. The Office for Budget Responsibility (OBR) expects a 9% decrease by autumn 2024, while Rightmove predicts a more modest 2% drop this year.

Mortgage Rates and Future Prospects

Mortgage rates are a critical factor to watch. If rates fall below 4.5%, more buyers might reenter the housing market. However, with current two-year fixed-rate mortgages averaging 6.5%, this recovery could take time.

What to Expect in the Property Market

While annual house price growth remains high, monthly declines continue. If demand slows down, and people have smaller deposits, house price growth could slow even further. However, a complete crash might be unlikely, as demand still outpaces supply in many areas across the UK.

The Bottom Line

The UK housing market is experiencing a period of decline, influenced by factors such as rising mortgage rates and economic challenges. While prices are falling, the extent of this decline varies according to different forecasts. The future of the housing market remains uncertain, but various factors will continue to shape its trajectory in the coming months.

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