House prices drop for first time this year as Bank of England interest rate hikes take hold
House prices have dropped for the first time this year, sparked by the property market being whacked by the Bank of England’s 12 successive interest rate hikes to quash inflation, new figures out today show.
The average price of a home coming to market fell £82 over the last month to £372,812, the first drop in June since 2017, a month in which the housing market typically springs back to life after its early year slow down, according to numbers from property search site Rightmove.
On an annual basis, prices are still rising, up 1.1 per cent over the year to June.
London house prices also fell over the last month, down sharply by 1.6 per cent, the biggest monthly fall of any UK region. They are still elevated at more than £685,000.
A big jump in mortgage rates in response to financial markets jacking up their expectations for how high the Bank will pump up borrowing costs to tame inflation has squeezed people out of the market.
Average rates on two-year and five-year mortgages have climbed to just under six per cent, more than doubling over the last year.
As a result, potential buyers are rethinking their home purchase plans, putting pressure on sellers to drop prices in order to find customers.
“Buyer affordability constraints and more pricing realism from new sellers have brought forward the usual summer slowdown,” Rightmove said.
“These increases in rates and monthly mortgage payments may mean that some have to pause their plans for now,” the FTSE 100-listed firm added.
The Bank of England has lifted interest rates twelve times in a row to 4.5 per cent in a bid to tame inflation, which has been running at levels not seen for four decades.
UK house asking prices over last five years
Markets think Bank Governor Andrew Bailey and co will send rates up again on Thursday, probably by 25 basis points, and launch more rises throughout the year, possibly taking them to at least 5.75 per cent. There’s a slim chance of a bigger 50 basis point jump.
“It is likely to feel very frenetic for those taking out a mortgage right now,” Tim Bannister, director of property science at Rightmove, said.
Last week, lenders HSBC, Nationwide and NatWest lifted rates on certain mortgage deals. Several banks have hoisted rates two times in a week, a rarity in the mortgage market.
Despite higher mortgage rates, Rightmove said new buyer demand is actually higher than it was in 2019, before the Covid-19 crisis kicked off.
Analysis by the economic think tank the Resolution Foundation out over the weekend estimates that the more than 1m homeowners who will roll onto a new mortgage this year at significantly higher rates will have to swallow a near £3,000 jump in average annual repayments.
The prospect of having to hand over more cash every month to banks is tipped to deter Brits from getting on to the property ladder.
Separate measures of house prices from Nationwide and Halifax have also shown they are on the way down.