More gloom is expected in the housing market as ‘storm clouds gather’

Home prices fell for the first time in more than a decade last month and further gloom is expected after ‘thunderclouds gathered’ over the market.

Prices fell 1 percent in May compared to the same month a year ago, according to lender Halifax — the largest year-on-year decline since August 2012.

It comes amid a warning that 367,000 mortgage borrowers whose fixed rate deals expire in the coming year will face a shocking £300 increase in monthly repayments as they are forced to renew much more expensive deals.

And in another sign of the pressure on consumers, the level of household savings fell for the first time in 15 years, according to figures from the industry body UK Finance.

Kim Kinnaird, director of Halifax Mortgages, said: “As expected, the brief revival we saw in the housing market in the first quarter of this year has faded, with the impact of higher interest rates gradually feeding into household budgets.”

With inflation proving much more difficult to bring down, markets are pricing in further increases in the Bank of England’s base rate, leading to rising mortgage rates across the market.

Ms Kinnaird said: ‘This will inevitably erode confidence in the housing market as both buyers and sellers adjust their expectations, and the latest industry figures for both mortgage approvals and completed transactions show demand cooling.

‘Therefore, further downward pressure on house prices is still expected.’

A separate report from the Royal Institution of Chartered Surveyors (RICS) showed that sales and buyer interest had picked up slightly in May, but warned that the rise in interest rates would undermine that.

RICS senior economist Tarrant Parsons said: ‘Thunderclouds are gathering, with stubbornly high inflation in the UK likely… prompting the Bank of England to take further action through rate hikes, leading to higher mortgage rates and eventually a reduction of affordability and buyer demand. ‘

The numbers add to signs of increasing pressure on homebuyers who are seeing their finances strained by both the rising cost of living and the rising price of borrowing.

Separate data this week showed that record first-time buyers were now taking on mortgages with maturities in excess of 35 years to fulfill the increasingly unaffordable dream of getting up the housing ladder.

The Halifax figures showed the typical UK property cost in May was £286,532, little changed from the previous month, but down 1 per cent from a year earlier.

With inflation proving much more difficult to bring down, markets are pricing in further increases in the Bank of England’s base rate, leading to rising mortgage rates across the market. Chancellor Jeremy Hunt will be photographed in May

Prices have not fallen on an annual basis since December 2012, according to the lender’s data.

According to the report, values ​​in the south of England were most under pressure.

It showed property prices in the UK have fallen by around £3,000 over the past 12 months and are down around £7,500 from their August high.

However, they are still £5,000 up since the end of last year and £25,000 above levels two years ago.

The UK housing market was battered by last autumn’s mini budget, which unleashed bond markets and a sharp spike in mortgage rates. Those rates began to fall in the following months.

But now evidence that inflation is taking longer than expected to fall has added to the turbulence as market prices raise the likelihood of further rate hikes from the Bank of England.

This has led to a sharp rise in mortgage interest rates, which have been priced on the basis of those expectations.

Figures from UK Finance showed that lending to first-time buyers in the first quarter of the year was the weakest since spring 2020.

The number of borrowers with payment arrears also increased.

And the level of household savings fell for the first time in 15 years “as people dug into their piggy banks to pay their bills,” said Eric Leenders, managing director of personal finance at UK Finance.

Meanwhile, the consumer credit agency Equifax estimated that more than 367,000 fixed-rate mortgages will reach the end of their five-year terms in the coming year.

With an average outstanding balance of £170,000, that means a typical £300 increase in monthly repayments.

Paul Heywood, chief data and analytics officer at Equifax UK, said: ‘We expect a gradual increase in missed payments.

“Declining affordability may also limit or even slow down house price growth, which may lead to a correction in the housing market.”