House prices fall further 0.4% as market continues to cool: Halifax

Average house prices fell by 0.4% in October, the third decrease in the past four months, according to the latest Halifax house price index.

The drop of 0.4% is the sharpest recorded since February 2021, taking the typical property price to a five-month low of £292,598. While the pace of annual growth also continued to ease, to 8.3% compared to 9.8% in September, average prices remain near record highs.

Property price inflation weakened across all buyer types during October, with annual price growth among homemovers falling to 8.9% from 10.3% in September.

More notable was the drop in property prices for first-time buyers. Annual growth fell to 7.5% in October from 10.1% in September. Given the greater challenges for first-time buyers in deposit-raising, plus tighter requirements for higher loan-to-value mortgages, Halifax says the relatively faster slowdown in prices is not surprising.

All English regions with the exception of the North East experienced weaker annual price inflation during October compared to September. However the West Midlands now has the joint highest annual growth of any UK region at 11.7% (average property price of £254,962) down from 13.2% the previous month.

Wales saw the same rate of annual growth at 11.7%, though this was a fall from 14.4%.

Scotland has also seen its pace of annual house price inflation slow to 7.5% (from 8.3%) with a typical property now costing £203,820.

House prices in Northern Ireland are up 9.5% year-on-year, easing back from 10.9% last month. At £184,440 the average house price remains £46,500 below its pre-financial crisis peak in mid-2007.

The pace of annual property price inflation also slowed in London, which continues to lag the other UK regions and nations. House prices have risen 6.8% over the last 12 months. However, given the cost of the capital’s average property (£551,320), London still recorded the biggest cash increase of any UK region over the past year (+£34,900).

Kim Kinnaird, director of Halifax Mortgages, said: “Though the recent period of rapid house price inflation may now be at an end, it’s important to keep this is context, with average property prices rising more than £22,000 in the past 12 months, and by almost £60,000 (+25.7%) over the last three years, which is significant.

“While a post-pandemic slowdown was expected, there’s no doubt the housing market received a significant shock as a result of the mini-budget which saw a sudden acceleration in mortgage rate increases. While it is likely that those rates have peaked for now – following the reversal of previously announced fiscal measures – it appears that recent events have encouraged those with existing mortgages to look at their options, and some would-be homebuyers to take a pause.

“Understandably we have also seen consumer caution grow, as industry data shows mortgage approvals and demand for borrowing declining. The rising cost of living coupled with already stretched mortgage affordability is expected to continue to weigh on activity levels. With tax rises and spending cuts expected in the Autumn Statement, economic headwinds point to a much slower period for house prices.

“While certain longer-term, structural market factors which support higher house prices – like the shortage of available properties for sale – are likely to remain, how significantly prices might ultimately adjust will also be determined by the performance of the labour market.

“Currently joblessness remains historically low, but with growing expectations of the UK entering a recession, unemployment is expected to rise. Whilst it may not spike to the same extent as seen in previous downturns, history tells us that how this picture develops in the coming months will be a key determinant of house price performance into next year and beyond.”

Jack Roberts, CEO of home moving platform SlothMove, commented: “We’ve had the boom, the question is whether we’ll now have the bust.

“Caution is the watchword, as even Andrew Bailey starts to complain that mortgage interest rates are too high. Prices have only cooled slightly but recent record highs are bound to start disappearing from view.

“Borrowers aren’t silly. They are acutely sensitive to signs the medium-term wisdom of purchases at these sorts of valuations no longer add up. This is especially true if people have reason to fear being greeted by higher interest rates at the end of their next fixed-term mortgage.

“Many purchasers, particularly first-time buyers, have been offered nothing less than a menu of reasons to justify more of a wait-and-see approach. With the rising cost of borrowing, chaos in government, bubbly price rises over the last two years and affordability ratios testing the courage of anyone scraping together a deposit, it’s no surprise the market seems to be turning a corner. First-time buyers are reacting to the shift in the balance of power by forcing a collapse in the annual rate of growth seen in their corner of the market.

“With tax rises on the horizon now too, the only question is how deep the coming correction will be. Factors such as shortage of supply, while they power the market higher in the good times, are no longer such a safety net. We’re entering an unpredictable period where buyers, particularly first-time buyers, will hold off on purchases, hoping to get better prices once valuations sink further.”