UK house prices fall by most since 2009 as rate rises bite

British house prices have fallen at the fastest pace since 2009 over the past year, reflecting the increasing impact of higher interest rates, mortgage lender Halifax said on Thursday.

Halifax said house prices were 4.6 per cent lower last month than in August 2022, when they were close to their peak. This compared with a 2.5 per cent annual fall in July and a median 3.45 per cent decline forecast in a Reuters poll.

Prices fell 1.9 per cent in August alone, the biggest monthly fall since November 2022, and also more than the 0.3 per cent poll forecast.

“House prices have proven more resilient than expected so far this year…. However, there is always a lag-effect where rate increases are concerned, and we may now be seeing a greater impact from higher mortgage costs,” said Kim Kinnaird, director at Halifax Mortgages, part of Lloyds Banking Group (LLOY.L).

The Bank of England has raised interest rates 14 times since December 2021, taking rates to 5.25 per cent in August. Governor Andrew Bailey said on Wednesday that rates were now “much nearer” their peak than before, although financial markets still expect a further increase to 5.5 per cent this month and another rise after.

Rival mortgage lender Nationwide reported last week that house prices in August were 5.3 per cent lower than a year earlier.

Official data showed house prices rose 27 per cent between February 2020 and their peak in September 2022, reflecting increased demand for living space during the COVID-19 pandemic, temporary tax breaks and low interest rates over much of that period.

The average property price had now fallen back to levels similar to early 2022 at 279,569 pounds ($349,601), Halifax said, down 14,000 pounds from the peak last year but still around 40,000 pounds higher than before the pandemic.

A Reuters poll of housing market analysts last week showed they expected prices this year to fall 4 per cent and to be unchanged in 2024 before rising 3.3 per cent in 2025.

Imogen Pattison, assistant economist at Capital Economics, said the bigger-than-expected fall in Halifax house prices supported the consultancy’s forecast that house prices would drop a total of 10.5 per cent by mid 2024.

“High mortgage rates will mean demand remains very weak while previously tight supply of second-hand homes on the market is easing,” she said.

($1 = 0.7997 pounds)