House prices fall again but how long will ‘correction’ last?

House prices fell for the sixth consecutive month in a row during September and dropped at the fastest rate since August 2009, Halifax claims.

The latest Halifax House Price Index showed average values fell 4.7% annually and by 0.4% on a monthly basis to s £278,601.

The typical UK home now costs £278,601, around the level seen in early 2022, Halifax said.

Property prices are still up by 1% since initial Bank of England base rate rise in December 2021, while average prices remain more than £39,000 above pre-pandemic levels.

Kim Kinnaird, director at Halifax Mortgages, said: “Activity levels continue to look subdued compared to recent years, with industry data showing lower levels of new instructions to sell homes and agreed sales.

“Borrowing costs are the primary factor, given the impact of higher interest rates on mortgage affordability. Against this backdrop, homeowners inevitably become more realistic about their target selling price, reflecting what has increasingly become a buyer’s market.

“However, with base rate now likely to be at or around its peak, we are seeing fixed rate mortgage deals ease back from recent highs. Wage growth also remains strong, which has helped with affordability.

“Many economists and financial markets predict that base rate will remain higher for longer, with any significant cuts appearing unlikely until inflation gets closer to the Bank of England’s 2% target. 

“Overall, these factors are likely to keep mortgage rates elevated in comparison to recent years, constraining buyer demand and putting downward pressure on house prices into next year.”

Commenting on the figures, Tom Bill, head of UK residential research at Knight Frank, said: “The fact rising interest rates have caused a house price correction was predictable but the extent of the recent volatility was not. 

“The combination of the mini-Budget and fourteen consecutive rate rises have taken their toll on demand but buyers and sellers should return in greater numbers as a sense of stability returns. 

“The financial pain entering the system will continue next year as people roll off fixed-rate deals, but there will be an improvement in sentiment, that vital lubricant in the housing market. We therefore think most of the UK’s house price correction will happen this year and modest single-digit annual growth will return after the next general election.”