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Market reaction to house prices showing biggest drop since 2008

British house prices slid last month by the most since the global financial crisis as the slowdown in the housing market intensified, mortgage lender Halifax reported on 7 December.

House prices fell 2.3% month-on-month in November, the biggest drop since October 2008, following a 0.4% decline in October this year. Other gauges of house prices have also pointed to a slowdown underway, with household budgets squeezed by soaring inflation and rising borrowing costs.

In annual terms, house price growth slowed to 4.7% in November from 8.2% in October. Kim Kinnaird, director at Halifax mortgages, said: “Some potential home moves have been paused as homebuyers feel increased pressure on affordability and industry data continues to suggest that many buyers and sellers are taking stock while the market continues to stabilise.”

A poll of economists and property market analysts by Reuters last week forecast that house prices would drop around 5% next year, having risen about 24% since early 2020.

Market comment

Iain McKenzie, CEO at The Guild of Property Professionals, said of the Halifax figures: “(They) confirm what the industry has been seeing on the ground - house prices are falling, but not at the dramatic rate we might have expected after the recent economic upheaval. 

“It’s important to keep a sense of perspective and remember that property prices soared massively during the pandemic, meaning that these decreases are minor in comparison. The average home is still worth £45,000 more than it was in March 2020. The limited supply of housing is one of the main factors keeping the reins on falling prices. The unprecedented demand we have seen in the last couple of years has meant that estate agents have been scrambling to replenish their stock.

“The cost-of-living crisis will be the determining factor to control house prices in the months ahead. Mortgage affordability, as well as living costs, will affect how confident buyers are when it comes to committing to buying a new home. With nearly one in three property purchases ‘needs-based’ due to changing personal circumstances, the market will not grind to a halt, but pricing will be paramount to achieve a sale as the market swings back in the favour of buyers.”

However, Jack Roberts, CEO at home moving platform SlothMove, commented: “There will be no managed decline for the property market. House prices are rapidly fading and we’re now facing a chaotic toboggan ride to the bottom. The biggest monthly drop in 14 years reflects a lack of confidence from buyers who are quite prepared to sit on their hands this winter and wait for the market to move closer to them. And the longer they bide their time, the more likely it is for sellers to become disheartened and also step back from the fray. It’s a game of poker where the two main players have both left the table.

“The dip in borrowing rates below 6% could persuade some house hunters back into the fold, but the high cost of living remains a huge deterrent to pursuing a mortgage. With the UK sliding into recession and unemployment expected to rise, the decision to buy could be taken out of many people’s hands.”

Hannah Bashford, director at Devon-based mortgage broker Model Financial Solutions, added: “Everyone has checked out for Christmas. We’re seeing most people adopt a wait-and-see and let’s-look-seriously-in-January attitude. This has stopped the market in its tracks and it’s no wonder house price growth has slowed.

“Surveyors are cautious and down-valuations are becoming more common, which will trickle through to estate agents and cause price adjustments. This is not a bad thing, as house prices have been overinflated since the pandemic and to ensure first-time buyers have a chance of buying when they are 37 — the average age of a first-time buyer — prices had to come down. January is going to be busy when all the festivities are over and people want a project for the New Year.”

Zaid Patel, director at London-based estate agents, Highcastle Estates, stated: “The mini-Budget came at the worst time. Sales activity tends to drop towards the end of the year anyway, and the mini-Budget meant transactions dropped even more sharply. People are now making offers as low as possible to get the best deal. Unfortunately, I can't see much activity in December. However, estate agents will need to polish their negotiating skills for January as many buyers will offer 15% lower than the asking price. By then, sellers will be seriously revaluating how much their house is worth in the market.”

However, Samuel Mather-Holgate at Swindon-based advisory firm Mather & Murray Financial, is not so optimistic, concluding: “It’s not a buyers’ market, it’s not a sellers’ market, there’s barely a market at all. Transaction levels will dry up faster than a bar during the England v France match this weekend as the next six months see a battle of the wills between sellers trying to get what they think their property is worth and buyers realising a catastrophic crash is on the horizon.”

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