LONDON (Reuters) - British house prices showed the most widespread falls in 14 years in August as demand weakened against the backdrop of elevated mortgage costs and economic uncertainty, an industry survey showed on Thursday.
The Royal Institution of Chartered Surveyors (RICS) house price balance, which measures the difference between the percentage of surveyors seeing rises and falls in house prices, slumped to -68 in August from -55 in July. Thursday's house price balance marked the weakest reading since February 2009 and was below the -56 forecast in a Reuters poll of economists.
Simon Rubinsohn, chief economist at RICS, said "the survey pointed to a sluggish housing market with little sign of relief in prospect. Prices are continuing to slip albeit that the relatively modest fall to date needs to be seen in the context of the substantial rise recorded during the pandemic period."
The survey results echoed other signs of slowdown in the property sector.
Mortgage lenders Halifax and Nationwide have both shown prices falling in monthly terms as the Bank of England's sustained run of interest rate rises, persistent inflation and a prolonged cost-of-living crisis squeeze home-buyers. Official figures, released on Wednesday, showed the country's economy shrank by a sharper-than-expected 0.5% in July after public sector strikes and unusually rainy weather weighed on output.
Overall across Britain, RICS' measure of agreed sales was the weakest since April 2020 when much of the property sector was on lockdown due to the COVID-19 pandemic, and new buyer enquiries fell marginally from the month before. In the rental market, tenant demand continued to outstrip landlord instructions, limiting the number of available homes to rent, while a net balance of +60% surveyors expect to see a rise in rental prices over the coming three months.
Separate figures from property website Zoopla on Thursday showed the joint-highest rental affordability squeeze, with tenants spending 28.4% of their earnings in July on rent.
Higher rates pull UK house prices down – Halifax
But prices have proven more resilient than expected
The average UK house price fell by 1.9% to £279,569 in August, recording the largest monthly fall since November 2022 last year due to higher mortgage costs, Halifax has reported. The mortgage lender said property prices also dropped by 4.6% or around £14,000 on an annual basis, the biggest year-on-year decrease since 2009. It noted, however, that this was relative to the record high house prices seen last summer.
The prices are now back to the level seen in early 2022 and remain around £40,000 above pre-pandemic levels.
Kim Kinnaird, director of Halifax Mortgages commented on the results of the latest Halifax House Price Index “It’s fair to say that house prices have proven more resilient than expected so far this year, despite higher interest rates weighing on buyer demand. 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 flowing through to house prices. Increased volatility month-to-month is also to be expected when activity levels are lower, though overall, the pace of decline remains in line with our outlook for the year as a whole. Market activity levels slowed during August, and while there is always a seasonality effect at this time of year, it also isn’t surprising given the pace of mortgage rate increases over June and July. While these did ease last month, rates remain much higher compared to recent years.”
Ranald Mitchell, director of independent mortgage broker Charwin Private Clients, agreed that "the effects of the increases in borrowing costs are now very apparent, with property sales harder to achieve and sellers being tempted by lower offers so they can move on. Mortgage rates are continuing to slowly decrease week by week, so a lot of attention will be paid to how lenders react and price when the Monetary Policy Committee inevitably increases the base rate again at this month’s meeting,” Mitchell said.
James Briggs, head of personal finance intermediary sales at Together, pointed out that "with further Bank of England rate rises forecasted, hopeful borrowers are tracking mortgage pricing closely with careful consideration of when to strike for the best deal. With the continued squeeze on household budgets, an estimated 35% of people’s take-home pay is now being diverted to cover mortgage repayments, this may trigger further issues later this year and lead to more subdued activity. Indeed, market forecasts suggests that the rate of mortgage approvals will fall for Q3, dropping to around 40,000 by September, from 55,000 in June. With the overall 30% year on year drop in mortgage approvals looking likely, potential buyers should consider specialist lenders, who have the ability to assess finances on a case-by-case basis.”
Kinnaird believes that the market will continue to rebalance until it finds an equilibrium where buyers are comfortable with mortgage costs in a higher range than seen over the previous 15 years.
“We do expect further downward pressure on property prices through to the end of this year and into next, in line with previous forecasts,” she said. “While any drop won’t be welcomed by current homeowners, it’s important to remember that prices remain some £40,000 or 17% above pre-pandemic levels.”
Homeowners losing confidence in value of their property - research
Homeowners are becoming increasingly uncertain about the value of their property, research suggests. A new House Price Confidence Index, launched by marketing consultancy unchained.marketing and using YouGov research, asks around 13,000 respondents if they think the price of their home will be higher, lower or the same in a year.
Respondents can also say they don’t know.
YouGov has asked the question of its 350,000 members every week since 9 July 2017. The research suggests house price confidence reached its peak in February 2022 at a net score of 25.3%.
The index has progressively eroded since, reducing to a low of a net positive confidence of 1.36% as of 3 September, a lower score than in lockdown. There has been an overall increase in uncertainty, from 15.5% in July 2017 to 20.7% in September 2023. It now sits steadily above one in five people, the research shows.
Those in studio/flat/apartments and maisonettes have the most positive outlook, and those in terraced houses have a negative outlook, according to the index. Meanwhile, homeowners with properties worth between £700,000 to £899,000 have the most positive outlook, with the lowest positivity amongst those in homes between below £299,000 and above £900,000.
Regionally people in London, Yorkshire and the Humber, and the South East have the most positive outlook with the lowest positivity in East Midlands and North East.
Quieter property market may continue until Christmas
High mortgage rates and a lack of supply may mean the prime property market misses its typical seasonal boost in the run up to Christmas, LonRes has warned. It comes as the latest LonRes data for August shows transactions were 28.5% lower than the same month last year, and 9.2% below the 2017-2019 pre-pandemic period.
Average achieved sold prices fell by 1% compared to a year earlier, a slower pace of decline than last month, LonRes said.
Average values across prime London are 4.2% above their 2017-2019 average, which LonRes said indicates little change over the past few years. The property data firm said other indicators suggest this relatively quiet market will continue. New instructions were down 16.5% compared to last August and the number of properties going under offer fell by 17.1% on the same basis.
However, the number of under offers for the year to date is 18.9% above the 2017-19 average, so the wider context suggests that there is still a decent level of demand in the market.
The market for properties priced at £5m or more has been the strongest segment this year, but activity is slowing, LonRes said.Transactions in August were down 31.1% on the same month a year earlier and under offers fell 34.5%. New instructions fell 2.5% after two months with very high levels. All three of these metrics are significantly above their average 2017-19 levels.
The proportion of properties sold at £5m plus after a price reduction in the three months to August was 47%. This is the highest level since early 2019.
Nick Gregori, head of research at LonRes said “the central London market has been quiet over the summer with agents reporting feedback from clients that there is a feeling that London is not ‘open for business’ compared to other global cities. This is particularly relevant to investors and international buyers who still want to buy but have other options. With many sellers in this market discretionary and not needing to move we are not yet seeing much downward pressure on prices. The impact has all been on transactions, which continue to fall. For some domestic buyers demand is constrained by the cost of borrowing. High – and volatile – mortgage rates are feeding into a sense of caution for those looking to move. On the supply side the potential impact of remortgage increases creating ‘forced’ sellers is not yet evident. Households facing higher repayments are likely to cut back on spending before deciding to go down the route of selling up.
While activity over the summer has been quiet, Gregori added, comparison to previous years shows it is around typical levels for much of the past decade. The post-Covid boom in activity has made the slowdown seem more significant, but it remains to be seen what the last few months of the year will hold. September is typically the start of the autumn selling season for people looking to move by Christmas. But with transactions taking longer to go through a move by Christmas may be off the cards, meaning the usual seasonal activity may not take place this year.”