UK property market comes under inflation pressure
UK house prices fell in July for the first time in more than a year, as the country’s largest lender warned of the impact of higher interest rates and the broader cost of living crisis.
Following a year of exceptionally strong growth, house prices fell by 0.1 per cent in July, the Halifax House Price Index showed. This equates to £365 month-on-month fall in cash terms from June’s record average high of £293,586.
The decrease pushed the annual rate of growth from 12.5% to 11.8%, although the average house price still remains more than £30,000 higher than at the same time last year. The average price of a home was £293,221 in July, the first decrease since June 2021, according to the latest report from Halifax.
It may be recalled that the Bank of England (BoE) raised the base rate by 0.50 percentage points on Thursday, taking it from 1.25 per cent to 1.75 per cent, marking the biggest single rate jump since 1995. This will add around £50 per month to average tracker mortgage costs, based on average balances outstanding, according to calculations from trade association UK Finance.
In a grim warning on Thursday, UK’s Central Bank said people face two years of tumbling household incomes, with inflation set to soar to more than 13 per cent and the economy plunging into the longest recession since the financial crisis. The Bank's Monetary Policy Committee (MPC) forecast inflation peaking at 13.3 per cent in October, the highest for more than 42 years.
“While we shouldn’t read too much into any single month, especially as the fall is only fractional, a slowdown in annual house price growth has been expected for some time,” said Russell Galley, the managing director of Halifax. “Leading indicators of the housing market have recently shown a softening of activity, while rising borrowing costs are adding to the squeeze on household budgets.
Market cools in July as house prices fall for the first time in a year.
"That said, some of the drivers of the buoyant market we've seen over recent years - such as extra funds saved during the pandemic, fundamental changes in how people use their homes, and investment demand - still remain evident. The extremely short supply of homes for sale is also a significant long-term challenge but serves to underpin high property prices.
"Looking ahead, house prices are likely to come under more pressure as those market tailwinds fade further and the headwinds of rising interest rates and increased living costs take a firmer hold. Therefore a slowing of annual house price inflation still seems the most likely scenario.
Below are the average house prices in July, followed by the annual house price increase, according to Halifax:
- West Midlands, £250,051, 12.7 per cent
- East Midlands, £243,197, 12.2 per cent
- Wales, £222,639, 14.7 per cent
- Eastern England, £342,687, 12.2 per cent
- London, £551,777, 7.9 per cent
- North East, £170,688, 11.3 per cent
- North West, £226,665, 12.6 per cent
- Northern Ireland, £187,102, 14.0 per cent
- Scotland, £203,677, 9.6 per cent
- South East, £399,003, 11.9 per cent
- South West, £310,846, 14.3 per cent
- Yorkshire and the Humber, £205,249, 10.4 per cent
On a real basis, households' post-tax incomes are set to fall 1.5 per cent this year and 2.25 per cent the next. It would be the first time since records began in the 1960s that household incomes have fallen for two years in a row.
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