Record drop in house prices since 2009 amidst rising interest rates

British house prices have experienced their most rapid decline since 2009 over the past year, mortgage lender Halifax said on Thursday (7). The decline has been attributed to the growing influence of elevated interest rates.

In August 2023, Halifax said that house prices were 4.6% lower compared to August 2022, a period when they were nearing their highest levels. This compared with a 2.5% annual fall in July and a median 3.45% decline forecast in a Reuters poll.

Prices fell 1.9% in August alone, the biggest monthly fall since November 2022, and also more than the 0.3% 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% 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% this month and another rise after.

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

Official data showed house prices rose 27% 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% and to be unchanged in 2024 before rising 3.3% 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% 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.

(Reuters)