Fall in house prices, but future unpredictable

Annual house price growth has slowed down and the cost of a typical house has fallen slightly, however, experts are cautious as to what the future holds for the housing market, since the market has defied previous expectations.

House price dip

Two of the last three months have seen the average house prices decrease. According to Halifax, the typical cost of a house has decreased to £293,835 from £293,992. In September, prices fell by a very small amount of 0.1%.

Halifax reported that the annual growth has slowed for three months in a row, from 11.4% to 9.9% - a decrease to single digits for the very first time since January, 2022.

The following experts’ insights have been detailed below, pertaining their opinions about the future prospective of the housing market.

Managing Director of Halifax Mortgages and Protection, Lloyds Banking Group

Kim Kinnaird stresses that it is extremely difficult to predict what will occur in the near future. She states:

“Predicting what happens next means making sense of the many variables now at play, and the housing market has consistently defied expectations in recent times.

“While stamp duty cuts, the short supply of homes for sale and a strong labour market all support house prices, the prospect of interest rates continuing to rise sharply amid the cost of living squeeze, plus the impact in recent weeks of higher mortgage borrowing costs on affordability, are likely to exert more significant downward pressure on house prices in the months ahead.

Senior Personal Finance Analyst at Hargreaves Lansdown

Sarah Coles states that the recent price fall does not fully display the massive disturbance in the economy. She states:

“The chaos unleashed on the mortgage market last month will take its toll towards the end of the year and into the beginning of 2023. Rapidly rising interest rate expectations have pushed up mortgage costs so dramatically that we can expect it to depress demand. It will force some people to think twice about whether they can afford the home they need, and while others will still be keen, they may struggle to find someone willing to lend to them.

“Those who are remortgaging may also run into difficulties if their rate has shot up, and over time we are likely to see more people being forced to sell up and downsize. The sudden withdrawal of mortgages and the overnight hiking of rates also came as a horrible shock to homeowners and buyers.

“Without positive sentiment, it’s far more difficult to see the market defying the cost-of-living crisis. There are still some forces helping to hold prices up, including low stock levels, a robust labour market and stamp duty cuts. But despite all of them, it’s hard to see the market not softening from here, and the risks of house price falls have risen significantly.

CEO of The guild of Property Professionals

Iain McKenzie states that, over the past few years, the public has got used to the house prices gradually climbing upwards every single month that any kind of decline in price would garner a warm welcome.

McKenzie added:

“Interest rate rise is yet another factor slowly applying the brakes to the market, adding to the pressures from the cost-of-living crisis and challenging price-to-income ratios.”

Future expectations and how are landlords affected?

We have previously reported that the house prices are increasing, thus there are multiple sources that are reporting conflicting data on what is actually happening with in the market.

The difficulty in predicting the immediate direction of travel is born from a number of strong influencing factors in the current housing market, as Kim Kinnaird explains above.

A certain amount of landlords have been holding off from entering the market due to various changes and uncertainties in the industry, especially considering that the house prices have been considerably elevated over the last few years, making some landlords steer away from investing.

However, if house prices continue to fall, which is what Andrew Turner, Commercial Trust chief executive expects, it may present an opportunity for landlords to re-enter the market with opportunities for far better yields.

We will continue to monitor house prices and interest rates to help landlord clients navigate their investment options.