The average UK house price has fallen for the fourth month in a row, according to Halifax, which says higher borrowing costs are increasingly pushing first-time buyers to switch to smaller homes.
The average price fell by 0.3% in July, the bank’s monthly index showed, with a typical UK home costing £285,044, compared with a peak of £293,992 last August.
However, Halifax said there was an easing in the annual rate at which homes were falling in value. Property prices were down 2.4% last month compared with the same period last year, easing from a 2.6% fall in June.
The biggest decline was again in the south-east, the bank said. The average price was down 3.9% in July, meaning just over £15,500 has come off the value of a typical property in the region over the last year.
Wales was also experiencing downward pressure on property prices, as were all other regions. The exception was the West Midlands, where prices stayed flat.
Despite the fall in prices, Halifax said the housing market was showing resilience in the face of “tough economic headwinds”.
Kim Kinnaird, director at Halifax Mortgages, said: “In particular, we’re seeing activity among first-time buyers hold up relatively well, with indications some are now searching for smaller homes, to offset higher borrowing costs.”
The bank added that the buy-to-let sector was under pressure as the combination of increased interest rates and impact of future rental market reforms put the squeeze on landlords’ business models.
Kinnaird said the wider housing market remained closely linked to the performance of the wider economy. She said: “Several factors are providing support, notably strong wage growth, running at around 7% annually. And, while the uptick in unemployment is likely to restrain that somewhat, it seems unlikely to reach levels that would trigger a sharp deterioration in conditions.”
Another significant factor stymying housing market activity is rising interest rates, which were pushed up to 5.25% by the Bank of England last week.
Kinnaird said: “Expectations of further base rate increases from the Bank of England were tempered by a better-than-expected inflation report for June. However, while there have been recent signs of borrowing costs stabilising or even falling, they will likely remain much higher than homeowners have become used to over the last decade.”
This “affordability squeeze” will mean that house prices are likely to continue falling into next year, said Kinnaird. She added: “Based on our current economic assumptions, we anticipate that being a gradual rather than a precipitous decline.”
Kinnaird said that average house prices were still £45,000, or 19%, above pre-Covid levels.
Estate agents and property experts agree with the Bank of England’s analysis that house prices are set to continue to fall due to affordability issues.
Tom Bill, the head of UK residential research at Knight Frank, said: “While we expect UK prices to fall by 5% in 2023, demand should prove more resilient than expected given the shock-absorber effect of strong wage growth, lockdown savings, the availability of longer mortgage terms, forbearance from lenders and the popularity of fixed-rate deals in recent years.”
Gareth Lewis, the managing director of the property lender MT Finance, said: “Buyers are continuing to either play the waiting game or become more aggressive when offering on properties. But there are positive signs – there is still the desire to buy, but with a realignment with what is realistic or achievable in value.”
The decline in house-buying activity was reflected in a warning from LSL Property Services, one of the UK’s largest estate agency and mortgage businesses. LSL said its full-year profits were likely to be “substantially lower” than previous forecasts because of changes in the home loans market driven by increases to interest rates.
The firm, which owns the Your Move and Reeds Rains brands, said revenues fell to £104m in the first half of the year, down from £160.9m in the same period last year.
