UK house prices fall for first time in 11 years amid rising borrowing costs

UK house prices have experienced their first decline in over a decade, with increasing borrowing costs impacting potential buyers, according to mortgage lender Halifax. In May, the average property price saw a 1% drop compared to the same month in the previous year, with prices £7,500 lower than their peak in August.

Halifax’s Director of Mortgages, Kim Kinnaird, highlighted that higher interest rates are likely to put further pressure on house prices. She stated that the housing market’s brief upturn in the first quarter has faded, with the effects of higher interest rates gradually impacting household budgets, particularly for those with fixed-rate mortgage deals coming to an end.

Kinnaird added, “With consumer price inflation remaining stubbornly high, markets are pricing in several more rate rises that would take the base rate above 5% for the first time since the start of 2008. Those expectations have led fixed mortgage rates to start rising again across the market.”

House prices had initially increased after former Prime Minister Liz Truss introduced significant tax cuts in September, aiming to boost the UK’s economy. However, her announcement caused financial turmoil and instability in the country. Nationwide, another mortgage lender, reported a more substantial 0.5% month-on-month decline in house prices in April and a 3.4% annual decrease – the most significant drop since 2009.

Current Prime Minister Rishi Sunak and Finance Minister Jeremy Hunt have expressed their desire to reduce taxes when possible, a goal shared by many members of their Conservative Party before the anticipated national election in 2024. However, their main priority is to halve inflation this year. The Organisation for Economic Co-operation and Development (OECD) predicts that British inflation will decrease to 2.8% in 2024, lower than in France and Germany.

The Bank of England will convene on June 22, with traders expecting an 88% chance of a 25-basis-point rate increase. The central bank has raised rates 12 times since late 2021, from 0.1% to 4.5%, in an effort to control inflation.