House prices fall by 0.4% in September, but pace of monthly decline slows

UK house prices fell again in September, but the pace of the monthly decline slowed, according to the Halifax.

The lender said the average house price fell by 0.4% in September, compared to a drop of 1.8% in August and that property prices were 4.7% down on an annual basis, compared  to -4.5% last month.

It added that the typical UK home now costs £278,601, around the level seen in early 2022, and that average prices remain more than £39,000 above pre-pandemic levels. The South of England continues to see most downward pressure on property prices.

Kim Kinnaird, Director, Halifax Mortgages, said: "UK house prices fell further in September, edging down by -0.4% on a monthly basis. This was a sixth consecutive monthly fall, though the pace of decline slowed markedly compared to August (-1.8%). The average home now costs £278,601, a drop of around £1,200 since last month. On an annual basis prices are down by -4.7%, largely unchanged from -4.5% in August. Nonetheless they remain some £39,400 higher than in March 2020, such was the extraordinary growth seen during the pandemic."

Kinnaird added: "Activity levels continue to look subdued compared to recent years, with industry data showing lower levels of new instructions to sell homes and agreed sales. Borrowing costs are the primary factor, given the impact of higher interest rates on mortgage affordability. Against this backdrop, homeowners inevitably become more realistic about their target selling price, reflecting what has increasingly become a buyer’s market.

“However, with Base Rate now likely to be at or around its peak, we are seeing fixed rate mortgage deals ease back from recent highs. Wage growth also remains strong, which has helped with affordability, with the house price to income ratio now at its lowest level since June 2020 (6.2 in September vs 6.3 in August). Many economists and financial markets predict that Base Rate will remain higher for longer, with any significant cuts appearing unlikely until inflation gets closer to the Bank of England’s 2% target. Overall, these factors are likely to keep mortgage rates elevated in comparison to recent years, constraining buyer demand and putting downward pressure on house prices into next year.”

The Halifax added that all UK nations and the nine English regions registered a decline in house prices on an annual basis. It said prices are under the greatest downward pressure in the South East of England, falling by -5.7% over the last year (average house price of £376,450). Meanwhile, Northern Ireland currently has the most resilient house prices, down by just -0.2% compared to this time last year (average house price of £184,108), a fall of less than £400. Scotland also experienced a relatively modest annual decline of -0.8% (average house price of £201,594). Wales saw property prices fall by -3.6% over the last year (average house price of £214,585). London remains the most expensive place in the UK to purchase a home, with an average property price of £525,678. With prices down by -4.8% over the last year, it has seen the biggest fall of any region in cash terms (-£26,514).

According to Katy Eatenton, mortgage and protection specialist at St. Albans-based Lifetime Wealth Management: “To say activity levels are subdued is probably an understatement, with the higher cost of borrowing a key factor in the lack of demand, despite the fact mortgages rates have been edging down in recent weeks. On a positive note, sellers are now pricing more realistically, which should help stimulate the market."

Riz Malik, director at Southend-on-Sea-based R3 Mortgages, suggested that the rest of 2023 was unlikely to see a marked recovery: “There is more chance of the government launching HS3 than the property market making any kind of decent recovery this year. Lenders are trying their best to stimulate the market but unfortunately that is not good enough."

Stephen Perkins, managing director at Norwich-based Yellow Brick Mortgages, added: “There are plenty of properties coming onto the market, but at the moment there are not as many buyers. Prospective buyers are keeping their powder dry, watching mortgage rates decrease and waiting for house prices to come down further to affordable levels. House prices are decreasing but not by enough to reignite interest from buyers."

Steven Hargreaves, mortgage adviser at Leeds-based broker The Mortgage Co, also noted the lack of activity: “At this time of the year, we should be busy, with buyers and sellers wanting to be in their new homes by Christmas. It's a little early to tell what October is going to be like, but currently it's still not the level of activity we were expecting. There appears to be a lack of first-time buyers and home movers. Lenders are finding the same and are having to be more lenient with criteria and income multipliers on top of lowering their rates to attract the limited supply of new mortgages out there. With criteria changes, lower interest rates and property prices falling, buyers could be back into purchasing mode in October and early December 2023, rather than the usual September and October period."

Meanwhile, Ranald Mitchell, director at Norwich-based Charwin Private Clients said "the market remains extremely sluggish at the moment, with buyer confidence yet to return. There is no shortage of supply, indicating that house prices may need to drop further to stimulate buyer interest. Having failed miserably to achieve lending and distribution targets this year, many lenders are gearing up for a full-on rate war. Things are going to heat up, and they need to, as the buyers simply aren't there right now.”

But Simon Bridgland, director at Canterbury-based broker, Release Freedom, said activity levels have improved over the past fortnight: “The past two weeks or so have seen activity pick up slightly, possibly caused by the Bank of England base rate pause. What's very clear is that asking prices aren't worth the paper they're written on these days. This week has seen a couple of my clients have very low offers accepted. If you've got the mortgage finance in place, you're in a great position right now. I think there will continue to be more property available for sale, especially when the January credit card bills start to hit the doormat, adding further pain to already stretched budgets.”

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