Why are house prices falling?

Average house prices have been falling steadily for the last few months now. In fact, the latest figures from Halifax show that prices fell by 1.5 per cent in December 2022, taking the average property value to £281,272.

What’s more, that was the fourth monthly decline in succession, which is staggering when you think that even a global pandemic failed to stop house prices heading upwards.

Figures also showed that on a year-by-year basis, house price growth slowed from 4.6 per cent in November to just two per cent in December, the slowest annual increase since October 2019.

So why has this happened?

Rising interest rates

High inflation has prompted the Bank of England to increase interest rates nine times in the last year, and they now stand at a 14-year high of 3.5 per cent.

Impact of Mini Budget lingers

The adverse response of the markets to September’s Mini Budget led to mortgage rates going up, and although they have come down following the departures of Liz Truss and Kwasi Kwarteng, they’re still higher than they were a year ago.

Cost of living crisis

Although inflation is tipped to fall over the coming months, it remains at 10.7 per cent – well above the Bank of England’s target of two per cent, and that’s having a serious effect on the spending power of households across the country.

Although the government has taken steps to ease financial pressures such as offering help with energy bills, this support is set to be scaled back this year.

Consumer confidence

Soaring prices and the prospect of a long recession have had a huge impact on consumer confidence, which according to research by GfK, is at its lowest sustained level in nearly half a century.

What happens next?

The UK is expected to slip into recession this year, and the problems we’ve outlined are unlikely to be overcome in the next few months.

As a result, Halifax expects house prices to fall by about eight per cent over the course of 2023.

However, it stresses that a drop of this size would take average house prices down to where they were in April 2021, when they were still “significantly above” pre-pandemic levels.

The Guild of Property Professionals, meanwhile, has insisted there is “no need to panic”, as a readjustment in the market had been expected following more than two years of inflated house prices.

“Fortunately for sellers, the demand for quality housing is still high, and many areas of the country are still seeing a shortage of stock, which will keep prices buoyant in the months ahead,” said Chief Executive Iain McKenzie.

The government has committed to halving the rate of inflation in 2023, which is in line with independent forecasts. But it is clear the cost of living crisis and consumer confidence will be the key factors that influence house prices over the coming months.

We understand that the economic climate is volatile right now and making major financial decisions can be daunting.

That’s why it’s so important to get advice from a professional, regulated financial advisor if you’re considering buying a house or taking out a mortgage. An experienced specialist will always offer advice with your best interests in mind, so you can move forward with confidence that you’re acting wisely and prudently.

Please get in touch with us if you have any questions.

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The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK. Welby is a trading name of Welby Associates Wealth Management Ltd Company Registered Number NI630504 who is authorised and regulated by the Financial Conduct Authority, FCA register number 697372. The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk

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