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Halifax Index Reveals First Annual House Price Drop; Further Declines Expected as Mortgage Rates Rise

According to the Halifax House Price Index, house prices remained stagnant in May but saw a 1% decline over the past year. This marks the first annual decrease recorded by the index since December 2012. The average property is now priced at £286,532, a drop of £3,000 from last year and £7,500 down from its peak in August 2022. Nevertheless, current prices remain £25,000 higher than two years ago.

Halifax raised its mortgage rates today, an indication of the toughening market conditions.

The southern regions of England witnessed the steepest declines over the year, with house prices in the South East falling by 1.6% and the South West experiencing a 1.4% decrease. The only property types to resist annual depreciation were new builds and detached houses. Conversely, flat prices dipped by 1.9%.

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, warns that all signs point to a challenging period ahead for the property market. She points out that the downward trend in prices began before Halifax passed on higher rates to its customers. This is a clear indication that market struggles are not over yet.

According to Coles, the dip in house prices in May is not a result of mortgage rates but a decrease in demand. The Royal Institution of Chartered Surveyors has documented a persistent fall in demand and agreed sales for several months. Furthermore, the Bank of England has announced a drop of over 5% in mortgages approved for future house purchases in April. As such, even without the hike in mortgage rates, a sluggish summer for the property market was expected.

Coles further predicts more turbulence for the market as core inflation has sent ripples through the mortgage market and as major lenders increase prices. She anticipates Halifax’s imminent rise in two- and five-year fixed rate deals to further suppress prices in the upcoming months.

Oxford Economics has projected a continuous fall in house prices until autumn 2025, with a recovery to 2022 levels not expected until 2028. However, it also anticipates smaller annual falls than previous downturns.

Nathan Emerson, CEO of Propertymark, the UK professional body for estate agents, takes a slightly more optimistic view, stating that house prices are steady and the market is robust. According to Propertymark data, there has been a 70% increase in available properties for sale compared to April 2022, indicating seller confidence and offering buyers more negotiation power.

Nicky Stevenson, Managing Director at national estate agent group Fine & Country, also sees some positives in the flat house price growth, saying it is attracting a steady stream of buyers seeking a good deal on their next home. She mentions that the three bank holidays in May were ideal for house hunting. Buyers now have more breathing room to consider their options, thanks to a market with strengthening stock levels. Homes are selling well, and agreed sales over May reached their highest point this year, up 11% on the five-year average for the same period. However, Stevenson acknowledges some challenges ahead, particularly with the withdrawal of some mortgage products and the upcoming base rate review.

The Halifax House Price Index for May was released today.