UK House Prices Experience Annual Fall for First Time in a Decade Data Shows

Digital Zeitgeist – UK House Prices Experience Annual Fall for First Time in a Decade Data Shows

In a significant shift in the UK housing market, house prices have witnessed their first annual decline in over a decade, according to data from Halifax. The average cost of a home in May was 1% lower than in the same month the previous year. This marks a reversal in the country’s prolonged housing boom, with soaring interest rates impacting household budgets.


The decline in house prices coincides with ongoing turmoil in the mortgage market, where banks and building societies have been swiftly withdrawing home loans and increasing the costs of fixed-rate deals. Halifax Intermediaries, the branch of the high street bank that caters to brokers, recently raised some of its fixed-rate deals by up to 0.82 percentage points. Similarly, Santander’s broker arm plans to increase the cost of its fixed deals, with certain rates rising by up to 0.33 percentage points.


Over the past year, the housing market has experienced a precipitous decline due to persistently high inflation, which currently stands at 8.7% and twelve consecutive increases in the UK base interest rate. Just last summer, Halifax reported an annual rate of house price growth exceeding 12%.


Kim Kinnaird, Director at Halifax Mortgages, explained that the temporary surge witnessed in the housing market during the first quarter of the year has faded. The impact of higher interest rates is gradually affecting household budgets, particularly for those with expiring fixed-rate mortgage deals. Kinnaird expects this to impact confidence in the housing market, as both buyers and sellers adjust their expectations.


Halifax reported that the average price of a UK home remained almost flat in May at £286,532, with a 0.4% decrease compared to March. On average, prices have fallen by approximately £7,500 compared to the peak of last summer. The decline in the number of mortgage approvals and completed transactions further indicates a cooling of demand in the market.


Kinnaird anticipates that house prices will continue to face downward pressure. Market expectations of multiple rate rises, potentially surpassing a base rate of 5% for the first time since 2008, have prompted fixed mortgage rates to rise across the market.


The coming month will see over 100,000 households reaching the end of their fixed-rate deals. The Office for National Statistics estimates that the number of expiring fixed deals in 2023 will peak in the second quarter, between 1 April and 30 June, at 371,000.


Homeowners are now faced with the choice of selecting deals with high rates or dealing with escalating costs by transitioning to their existing lender’s standard variable rate.


According to financial data provider Moneyfacts, the average rate on a new two-year fixed mortgage reached 5.79% in May, compared to 5.26% at the beginning of the month. As a result, individuals securing such a deal today would pay £756 more per year than someone who had signed up just over a month ago for an equivalent mortgage of £200,000. In comparison to someone who obtained a typical two-year fix at 3.03% in May of the previous year, the difference amounts to over £3,700 annually.


Simultaneously, the number of residential mortgage deals available has dwindled. On 22 May, the total stood at 5,385, but it has since dropped to 4,597 as lenders continue to raise borrowing rates and withdraw offers. Consequently, a growing number of buyers are opting for mortgages with terms exceeding 35 years in an attempt to make monthly payments more affordable.


UK Finance confirmed that the proportion of first-time buyers choosing mortgages with terms longer than 35 years reached a record high of 19% in March. Similarly, 8% of home movers also opted for mortgages with terms exceeding 35 years.


Nicholas Mendes, mortgage technical manager at broker John Charcol, emphasised the current market volatility and frequent changes in competitor products, which necessitate constant repricing or withdrawal of offers by lenders.


For individuals approaching the end of their fixed-rate period, seeking advice from a mortgage adviser is crucial, according to Mendes. While the affordability of mortgages remains feasible for most borrowers, apart from some first-time buyers, they must be prepared to allocate more funds toward their mortgage payments.


Gareth Lewis, managing director at property lender MT Finance, concurred, stating that mortgage borrowers, for the most part, can still manage their mortgage expenses but should be willing to allocate additional funds. The changing landscape of interest rates and lending conditions calls for adaptability among homeowners and buyers.


The recent decline in UK house prices and the challenges in the mortgage market reflects a broader economic context. The impact of higher interest rates, inflationary pressures, and evolving market dynamics are influencing the housing sector. As the housing market adjusts to these changes, it becomes crucial for both buyers and sellers to recalibrate their expectations and seek expert guidance to navigate the evolving landscape successfully.



  1. The Guardian:
  2. Halifax:
  3. Moneyfacts:
  4. UK Finance:

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