Residential property researchers reported the biggest drop in new buyer inquiries in October since the financial crisis, excluding the period during the Covid-19 lockdown.
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LONDON – UK house prices fell for the first time in nine months in December, as the government budget and higher mortgage rates dampened a recent wave of homebuyer activity.
Average house prices fell 0.2% between November and December – the first monthly drop since March – new data from lender Halifax showed on Tuesday. That was below the 0.4 percent price rise forecast by economists polled by Reuters.
This means that the average property value in the country has fallen slightly to £297,166 ($372,560).
House prices rose 3.3% year-on-year in December, but annual price growth slowed from 4.7% in November and below the 4.2% forecast by economists.
House building stocks in the UK Taylor Wimpey, Persimmon, Bellway and Barratt Redrow everything fell after the release of the data on Tuesday morning.
UK house prices rose steadily in 2024, increasing for five consecutive months after a brief period of stagnation as sentiment picked up following the UK election and the start of the Bank of England rate cut cycle.
However, a cooling interest rate expectations — including on the back of the government one tax and spend budgetwhich pushed up UK borrowing costs — putting pressure on transactions towards the end of the year.
Amanda Bryden, head of mortgages at Halifax, said higher mortgage rates are likely to continue to weigh on the market in 2025, although price growth remains “modest”.
“Mortgage affordability will remain a challenge for many, particularly as bank interest rates are likely to come down more slowly than previously forecast,” Bryden said.
Another crack in the real estate market
The fall in house prices comes after November mortgage approvals came in below expectations and fell below the number recorded in October, according to data released by the Bank of England on Friday.
Tom Bill, head of UK residential research at Knight Frank, said the combined prints showed that wobbles had begun to appear in the housing market after the government’s October 30 budget cast doubt on the government’s economic prospects.
“Some sort of slowdown is inevitable, due to the fact that borrowing costs have gone up,” Bill told CNBC’s “Street Signs Europe.”
Analysts now expect an increase in transactions in the first months of this year, as upcoming changes to a key tax for property buyers motivate buyers and sellers.
In its budget, the government announced the end of land tax cuts from the pandemic period, meaning buyers will be subject to higher transaction costs from April 1.
“Tax changes are undoubtedly the key driver of demand at the moment, supporting property values,” said Stephen Perkins, director of Yellow Brick Mortgages.
However, Bill noted that such a boom in business is likely to be short-lived, expecting a lull from the second quarter onwards.
“To some extent, the clock is ticking,” he said.
After the Budget, Knight Frank cut its forecast for UK house price growth in November. It now expects average home prices to rise 2.5% in 2025 and 3% in 2026, down from the 3% and 4% forecast in August, respectively.
