ONS: First annual house price fall in a decade

House prices fell on a monthly and annual basis during September as the cost of living crisis and higher interest rates continue to hit the property market.

The latest House Price Index from the Land Registry and Office for National Statistics (ONS) shows average property values fell 0.5% between August and September 2023 and by 0.1% annually to £291,385.

It is the first annual drop in house price growth for more than a decade but the yearly figures may be skewed by the slump in activity after the mini-Budget in September 2022 that riled the financial markets and set mortgage rates soaring.

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Average prices are now around £10,000 above the March 2023 trough of £281,555.

But commentators suggest buyers and sellers are holding off amid economic uncertainty and while mortgage rates and inflation remain high.

“The prevailing view is that interest rates will stay higher for longer causing the slump in buyer demand to be prolonged,” says Karen Noye, mortgage expert at wealth manager Quilter.

“At present, this has been coupled with sellers unwilling to put their properties on the market meaning that there does remain limited stock stopping any huge price crashes. 

“But as more and more people find that their fixed rate mortgage deals coming to an end push may come to shove and properties will have to be listed. A surge in stock at a time of limited demand will be bound to take the froth out of what has been a turbocharged market over the last few years.”

WHERE ARE HOUSE PRICES FALLING THE MOST?

House prices are down across most parts of the UK.

Average prices in England decreased by 0.5% annually in England to £310,000 and were down 2.7% in Wales to £215,000.

Scotland and Northern Ireland bucked the trend though.

Average prices in Scotland rose 2.5% annually to £195,000, while values in Northern Ireland were up 2.1% on a quarterly basis to £180,000.

The North East of England saw the highest annual percentage change of all English regions in the 12 months to September 2023, with average prices up 1.6% annually, while the South West saw the lowest growth with a 1.6% drop.

All English regions except the North West saw monthly declines in average house prices.

The highest average price was in London, at £537,000, but they are down 1.1% compared with last year.

All property types have fallen in price during the year, except detached houses which are up 0.6%. Terraced houses have performed the worst, with a 1.5% drop.

WHEN WILL HOUSE PRICES RECOVER?

The ONS figures echo more recent Halifax and Nationwide data for October that shows prices falling annually but these indices have shown average prices are up on a monthly basis.

The ONS data includes more of the market though as it accounts for cash buyers but its figures are around two months behind due to how long it takes for sales to be recorded with the Land Registry.

“This may not be a prolonged slump, because we’re comparing annual prices to what proved close to the peak of the market a year earlier,” says Sarah Coles, head of personal finance at Hargreaves Lansdown.

“From November last year prices were on their way down, so even if the property market remains weak, we could still see the annual figures turn positive.”

Even if these price drops don’t take hold, it’s still a really horrible time to be trying to sell a property, adds Coles. 

“Sales have slowed to a snail’s pace, so the Zoopla figures show sellers are being forced to slash asking prices in order to shift their home. We can expect this to show up in the official figures in around three months,” she adds.

“It’s hardly surprising that so many homeowners are choosing to bide their time, and wait to put their home on the market – in the hope that lower interest rates next year could bring buyers back, and secure a better price.”

Estate agents say many people are still approaching the market with caution, according to industry trade body Propertymark.

“As inflation starts to come back towards more manageable levels, we remain optimistic we will start to see a smoother path ahead,” says Nathan Emerson, chief executive of Propertymark.

“However, we currently have the situation of consumers being extremely mindful regarding affordability and such people will likely only commit to the housing market once they feel assured of a long-term stability - mainly in the form of lower interest rates."

Coles warns that taking a wait-and-see approach has its risks as if mortgage rates fall there could be more competition for properties, which usually pushes prices up.