The decline in house prices and what this means for the UK property market

The uncertainty of mortgage rates, increase in rent, rocketing inflation and detrimental energy prices all beg the question of what this means for the UK residential property market.

Upon reflection, after rocky months, many are grateful to have bought or re-mortgaged before the economic downturn derailed the property market. Whilst many people may be forced to enter the market through financial necessity, there are still those who choose to pursue their property purchase, wading through stifling hurdles. Before 2019 house prices were gradually increasing until the pandemic and stamp duty (SDLT) holiday accelerated the rate of property prices rising, which in turn acted as a catalyst for a more volatile market. 

Land Registry (HMLR) reported on the 16th of November 2022 that in September of this year, on average, there had been no change to house prices since August 2022. However, there had been an annual price rise of 9.5%, valuing the average UK property at £294,559. In England alone, the annual price rise of 9.6% takes the average property value to £314,278 with the breakdown as follows: 

House price change by region for England

Despite the HMLR statistics for year-on-year change up until September, in more recent data released from Rightmove, Halifax and Nationwide, there is an indication that house prices have in fact fallen over the last month with experts anticipating a further decline amid the cost-of-living crisis and high mortgage rates.

Prices have fallen on average by 1.1% which is -£4,159 in November, although it is not uncommon to see house prices fall at this time, specifically pre-pandemic, to encourage sales before the New Year. Despite the recent decline, the average is still 7% higher than this time last year. The SDLT holiday, where buyers in England and Northern Ireland could make tax savings when purchasing a home at the end of June and September 2021, distorted much of our understanding of rising house prices. Nevertheless, research shows that 7% of unsold properties have had their house prices reduced over the last month which is almost double the 4% of properties that had price cuts in October 2021. 

A pattern of decline in the housing market

The pattern of decline that we see and will continue to see will be partially due to the pressure sellers face selling ‘quickly’, agreeing on an attractive rate to encourage the sale so that vendor’s financial obligations and a means of living are accommodated. However, despite the decline in house prices, first-time buyers are impacted vastly due to the need to quadruple their deposits in reaching the housing ladder. The same buyer purchasing a £247,000 property with a 10% deposit would pay approximately £941 per month for a 25-year mortgage and is now expected to pay a 43% deposit if they are to keep their monthly mortgage payments the same. Although, with the market gradually entering a change of era post-pandemic and mini-budget, the choice of mortgage products is in fact increasing. On the 15th of November 2022, Moneyfacts counted 3,327 deals, though the number is still down from the 3,961 products that were recorded on the day of the mini-budget. 

The sequential effect of changes over the last month with declining house prices will both positively and negatively ripple through the property chains. Buyers are going to continue to find borrowing money from lenders difficult which will force the upper chain and sellers to reduce prices compared with this time last year. It is unlikely that properties are being sold at a lower rate than they should be, rather, the distorted image 2021 placed on the property market saw properties being sold at much higher prices than expected.

The UK House Price Index (HPI) uses the data for house sales from HMLR and is calculated by the Office for National Statistics: 

If you are now wondering if it is a good time to consider buying due to the decrease in house prices, it would be worth considering that although lenders are now lowering mortgage rates, they are still expensive. After the peak in rates seen in October 2022, a typical five-year mortgage term is approximately 6.07% in comparison to a typical two-year fixed rate of 6.28%. 

What will happen in the future?

Although it is not certain that house prices will fall in 2023, the current economic trajectory suggests it is likely. However, there is a multitude of factors that will also need to match the decline to benefit the buyer and kick-start the housing market, without the need for temporary political and economic fixes. This includes, but is not limited to, the demand for housing. Towards the beginning of 2022, there was an imbalance between supply and demand, with limited properties on the market. The imminent pressure for housing has dropped according to recent reports from Rightmove, who say properties took an average of 40 days to sell in October, which is 32 days up from May. 

For the remainder of 2022, whilst the decline in house prices may be gradual, it is evident. Experts forecasted earlier this year that there would be a relatively flat change in prices emerging into 2023. However, following the mini-budget and recent statistics from HMLR and lenders, in addition to the research-led discussions with agents and mortgage brokers, it would be prudent not to disregard the predictions that channel a drop in prices and change to the market for 2023. 

If you are considering selling or buying property and would like to know where the housing market may go in the future, speak to our experienced team of residential conveyancing lawyers. At GoodLaw we can advise on all the legal implications of purchasing property at this time, call us on 01273 956 270 or email advice@goodlawsolicitors.co.uk.