Mortgage crunch sends house prices down £7,000 from peak

The average house price in the UK is down £7,000 from its peak in September last year, figures from ONS today show, as the mortgage crisis takes its toll.

Annual house price inflation continued to slow to 3.5 per cent in April, according to the latest official data, but at £286,489, average property is 2.89 per cent below its September 2022 high of £295,000.

House price numbers came against the backdrop of chaos in the mortgage market, with rates rising dramatically over the past month.

As stubborn inflation data came in today and the Bank of England came under pressure to make more key rate hikes, it was revealed that the average two-year fixed mortgage rate has hit 6.15 per cent.

Capital Economics economists have warned that if interest rates remain at these levels for any length of time, home prices could fall by 25 percent.

Home prices are still rising year on year, says the ONS, but are down an average of £7,000 from last September’s peak

The ONS index is based on Land Registry sales prices and lags competitive mortgage data-based reports from major lenders. According to the national house price index for May, house prices fell by 3.4 percent annually and by 4.8 percent at their peak.

The ONS still shows rising house prices every year.

Regionally, properties in the Northeast saw the largest annual increase of 5.5 percent in the 12 months to April 2023.

London was the English region with the lowest annual growth, with prices rising by 2.4 percent over the same period.

While house prices held up in April, transaction data shows a significant decline in activity compared to the previous year. Transactions were down 25 percent in April 2023 compared to the same month in 2022 – and down 8 percent from March.

Iain McKenzie, CEO of The Guild of Property Professionals, says: ‘A £7,000 fall in the average home value since last September may be cause for concern for homeowners, but prices are still well above pre-pandemic levels.

“There will always be a demand for quality homes, and this will keep prices up and help the real estate sector through the storm.

“Affordability is the number one concern for buyers right now as rising mortgage rates keep people on their minds. Nobody wants to take out a mortgage and be faced with the uncertainty of whether they can pay the repayments.

“With inflation hopefully decreasing in the second half of the year, interest rates are also decreasing and we should see a return of confidence in the market, as well as the availability of competitive mortgages.”

> Mortgage chaos survival guide: what to do when rates rise

House price growth has gradually slowed after significant inflation during the pandemic

House price growth has gradually slowed after significant inflation during the pandemic

Real estate agent Knight Frank expects house prices to fall by 5 percent as rising interest rates put upward pressure on mortgage prices.

Tom Bill, head of UK residential research at Knight Frank added: “Record levels of home equity, the availability of longer mortgage terms, a stable banking system and the recent popularity of fixed rate products should also prevent a collective abyss moment arises for the British housing market.’

Others, however, are more sceptical. Economic consultancy Capital Economics predicts that if mortgage rates remain at the current level of 6 percent for several years, house prices will likely fall by 25 percent.

Jackson-Stops chairman Nick Leeming added: “Interest rates may still not have peaked. This means that the current market, even with its challenges, remains a good time to sell for buyers who want to relocate and achieve a good price before market adjustments seep in.”

Homeowners aren’t the only ones dealing with financial problems. Private rents paid by tenants rose 5 percent in the 12 months to May 2023, up from 4.8 percent in April 2023.

Prices are driving up as demand for rental properties continues to outstrip supply.

The Royal Institution of Chartered Surveyors reported in its May 2023 UK Residential Market Survey that tenant demand increased in May, while new instructions for landlords fell.

In addition, over the past six months there has been a decline in interest from new UK-based buy-to-let investors, as well as a decline in interest from overseas buy-to-let investors who are exploring the pipeline of new homes for rent.

Data from Zoopla showed that rental costs in Britain rose by 10.4 per cent over the past year and that in some areas monthly expenses take up two-fifths of a typical income.

Private tenants are facing higher rental costs as demand continues to outstrip supply

Private tenants are facing higher rental costs as demand continues to outstrip supply

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed-rate contract is about to expire, or because they have agreed on a home purchase, should explore their options as soon as possible.

This is Money’s best mortgage interest calculator powered by L&C that can show you deals that match your mortgage and property value

What if I have to borrow again?

Borrowers should compare rates and speak with a mortgage broker and be prepared to trade to secure a rate.

Anyone with a fixed-rate deal expiring in the next six to nine months should research how much it would cost them to re-mortgage now — and consider getting a new deal.

Most mortgage agreements allow fees to be added to the loan and are not charged until it is closed. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I buy a house?

Those with an agreed home purchase should also aim to secure rates as soon as possible so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overextend themselves and be prepared for the possibility that house prices could fall from their current highs, due to higher mortgage rates limiting people’s borrowing capacity.

Compare mortgage payments

The best way to compare mortgage rates and find the right deal for you is to talk to a good real estate agent.

You can use our best mortgage interest calculator to display deals that match your home value, mortgage size, term and fixed interest needs.

However, bear in mind that rates can change quickly, so if you need a mortgage it’s advice to compare rates and then speak to an estate agent as soon as possible so they can help you find the right one mortgage for you.

> Check out the best fixed rate mortgages you can apply for

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