Housing surveyors have reported the largest fall in new buyer inquiries in October since the financial crisis, excluding the period during the Covid-19 lockdowns.
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LONDON — U.K. house prices fell for the first time in nine months in December, as the country’s Budget and higher mortgage rates dampened a recent flurry of homebuyer activity.
Average property prices dipped 0.2% between November and December — the first monthly drop since March — fresh data from lender Halifax showed Tuesday. That was below the 0.4% price rise forecast by economists polled by Reuters.
It means the average property value in the country fell slightly to £297,166 ($372,560).
House prices rose 3.3% on the year in December, but annual price growth was also down from 4.7% in November and below the 4.2% predicted by economists.
Shares of U.K. homebuilders Taylor Wimpey, Persimmon, Bellway and Barratt Redrow all fell following the data release Tuesday morning.
U.K. house prices rose at a steady clip in 2024, increasing for five consecutive months following a brief spell of stagnation as sentiment picked up on the back of the U.K. election and the start of the Bank of England’s rate cutting cycle.
However, a cooling of interest rate expectations — including on the back of the government’s tax-and-spend Budget, which pushed up U.K. borrowing costs — put pressure on transactions toward the tail end of the year.
Amanda Bryden, head of mortgages at Halifax, said higher mortgage rates were likely to continue to weigh on the market in 2025, even as price growth remains “modest.”
“Mortgage affordability will remain a challenge for many, especially as the Bank Rate is likely to come down more slowly than previously predicted,” Bryden said.
A second crack in the housing market
The downtick in house prices comes after mortgage approvals fell short of expectations in November and came in below the number recorded in October, according to data released Friday by the Bank of England.
Tom Bill, head of U.K. residential research at Knight Frank, said the combined prints showed that wobbles had begun to emerge in the housing market after the government’s Oct. 30 Budget cast doubt over the country’s economic outlook.
“Some sort of slowdown is in the post inevitably, due to the fact that borrowing costs have risen,” Bill told CNBC’s “Street Signs Europe.”
Analysts are now expecting transactions to pick up in the initial months of this year, as upcoming changes to a key homebuyer tax motivate buyers and sellers.
The government announced the end of a pandemic-era reduction in Stamp Duty Land Tax in its budget, meaning that buyers will be subject to higher transaction costs from April 1.
“The stamp duty changes are undoubtedly a key driver of demand at present, which is supporting property values,” Stephen Perkins, managing director at Yellow Brick Mortgages, said.
However, Bill noted that such an uptick in deals was likely to be short-lived, expecting a lull from the second quarter onward.
“There’s a ticking clock to some degree,” he said.
Following the budget, Knight Frank revised down its U.K. property price growth forecasts in November. It now expects average property prices to increase 2.5% in 2025 and 3% in 2026, down from 3% and 4%, respectively, forecast in August.