House prices fall at fastest rate in 12 years as mortgage mayhem hits

House prices are falling at their fastest rate in 12 years, dropping £7,500 on average over the past year, Britain’s biggest mortgage lender Halifax revealed today.

The bank’s long running index showed the average house price down 2.6 per cent over the past year, as spiralling mortgage rates take their toll on the housing market.

Adjusted for the current official UK CPI inflation rate of 8.7 per cent, property values have fallen by 11.3 per cent in real terms over the past 12 months.

But Halifax said that the market was proving more resilient than many would expect, with only a slight 0.1 per cent monthly decline in May taking the average house price to £285,932.

Kim Kinnaird, director at Halifax Mortgages, said: ‘The annual drop of -2.6% (-£7,500) is the largest year-on-year decrease since June 2011. 

‘With very little movement in house prices over recent months, this rate of decline largely reflects the impact of historically high house prices last summer – annual growth peaked at +12.5% in June 2022 – supported by the temporary Stamp Duty cut.

‘To some extent the annual growth figure also masks the fluctuations we’ve seen in the market over the past 12 months. 

‘Average house prices are actually up by +1.5 per cent (£4,000) so far this year, with most of that growth coming in the first quarter, following the sharp fall in prices we saw at the end of last year in the aftermath of the mini-Budget.

‘These latest figures do suggest a degree of stability in the face of economic uncertainty, and the volume of mortgage applications held up well throughout June, particularly from first-time buyers.’

But the full effect of the recent mayhem in the mortgage market, which has seen rates spiral over the past six weeks, has not been seen in the property market yet.

The rapid rise in mortgage rates has seen the average two-year fixed rate climb to almost 6.5 per cent and the average five-year fix rise above 6 per cent.

Higher rates impact buyers’ ability to borrow and will limit what they can pay for properties, potentially driving down headline house prices.

Kinnaird added: ‘The housing market remains sensitive to volatility in borrowing costs. Concerns about persistent inflation have led to a significant increase in the cost of funding.

Coupled with base rate rising by another 50bp, this contributed to a big jump in typical mortgage rates over the last month.

‘The resulting squeeze on affordability will inevitably act as a brake on demand, as buyers consider what they can realistically afford to offer. While there’s always a lag effect when rates go up, many existing mortgage holders with variable deals or rolling off fixed rates will likely face an increase in the next year.’