Interactive Investor

House prices fall at fastest pace in nearly 11 years

7th June 2023 07:53

Myron Jobson from interactive investor

Affordability squeeze keeps buyers on the sidelines, says Myron Jobson, who comments on the latest Halifax House Price Index.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Home prices fell at their fastest annual pace for nearly 11 years in May. But the plight of aspiring buyers remains as the cost of owning a home has soared, with average monthly mortgage repayments climbing in recent weeks on expectations that the Bank of England will have to lift interest rates again to combat stubbornly high inflation.

“Halifax and Nationwide are singing from the same hymn sheet this month when it comes to house prices. Both have reported a meaningful annual decline in the cost of the average property in May, with Halifax reporting the biggest decline in house price growth since December 2012, while Nationwide claimed it was the biggest decline since July 2009.

“It is becoming increasingly clear that the resilience of the property market in the first quarter of the year was a flash in the pan, with the impact from the affordability squeeze from high mortgage rates and high inflation filtering through. The constrictions imposed by affordability culminate in a diminished pool of buyers capable of participating in the market, exerting downwards pressure on price growth.

“The recent rises in the mortgage rates, which has seen rates climb by 0.4% within a fortnight, could further fuel further declines in house prices in the coming months.

“The fall in house prices can be a blessing or a curse depending on which side of the fence you sit on. On the one hand, it presents an opportunity for wannabe buyers to get on and move up the property ladder. On the other hand, declining prices may erode homeowner equity, making it more challenging for existing homeowners to sell their properties.

“The mortgage affordability squeeze not only impacts the dreams of aspiring homeowners but also reverberates throughout the housing market. Discouraged by the uphill struggle, aspiring first-time buyers have found themselves locked out of home ownership, fuelling demand in the rental market. This, in turn, places upwards pressure on rental prices, exacerbating the overall affordability crisis.”

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