Britain's house prices are slumping as mortgage rates soar — and there could be worse to come

LONDON — U.K. location prices fell astatine their fastest yearly gait successful 12 years successful June arsenic inactive escalating owe costs piled further unit connected the spot market.

Property prices slumped 2.6% successful the twelvemonth to June, their biggest diminution since June 2011 and a crisp summation connected the 1.1% yearly driblet recorded successful May, according to owe lender Halifax's latest terms index released Friday.

Prices were down for the 3rd consecutive month, slipping 0.1% since May. The mean U.K. spot present costs £285,932 (£364,490), down from a highest of £293,992 successful August 2022.

Kim Kinnaird, manager astatine Halifax Mortgages, said the yearly diminution belies a flimsy betterment successful prices this twelvemonth pursuing the cataclysmic fallout from the U.K.'s "mini budget" successful October, which saw owe rates soar and spot prices plummet.

"Average location prices are really up by +1.5% (£4,000) truthful acold this year, with astir of that maturation coming successful the archetypal quarter, pursuing the crisp autumn successful prices we saw astatine the extremity of past year," she said.

However, she added that "the lodging marketplace remains delicate to volatility successful borrowing costs."

Homeowners and would-be buyers person been beset by rising borrowing costs implicit the past twelvemonth arsenic the Bank of England has sought to get a grip connected stubbornly precocious inflation.

The BOE raised involvement rates for the 13th consecutive clip successful June, hiking by a astonishment 50 ground points and taking the basal complaint to 5%. It came arsenic U.K. halfway ostentation roseate month-on-month successful May.

Lofty ostentation and higher benchmark slope rates person pushed up U.K. sovereign gilt yields, which are utilized to terms mortgages, prompting immoderate lenders to summation rates oregon propulsion definite products each together.

Sarah Coles, caput of idiosyncratic concern astatine Hargreaves Lansdowne, said the latest complaint hike was not afloat reflected successful Friday's lodging data, apt spelling much symptom up for borrowers.

"Two-year fixed rates started June conscionable nether 5.5% and five-year deals astatine 5.1%, according to Moneyfacts, and they ended the period astatine 6.4% and conscionable shy of 6% respectively. All eyes volition beryllium connected conscionable however overmuch harm whitethorn beryllium done erstwhile caller rates provender done into the figures," Coles told CNBC.

Higher owe rates look acceptable to adhd further downward unit to the lodging market, she added, with prices connected way to autumn further this summer.

"Sellers person already started cutting prices to displacement their properties. Zoopla figures showed 1 successful 20 made a chopped successful May, averaging 9%. The summertime is apt to spot terms cuts go adjacent much widespread, and we whitethorn good spot location prices autumn much significantly," she added.

Liam Bailey, caput of planetary probe astatine Knight Frank, agreed, noting that the home lodging marketplace has "further to autumn successful presumption of pricing." In its latest planetary lodging scale released Wednesday, the existent property institution said U.K. location prices fell 3.1% annually successful the archetypal quarter.

"While little prices volition beryllium welcomed by archetypal clip buyers, higher rates mean affordability volition inactive beryllium stretched for astir caller marketplace entrants," helium said.

The Bank of England is expected to proceed its dogged efforts to tame ostentation with further hikes done the remainder of this year.

Market watchers present expect rates to deed a highest of 5.75% to 6% successful November, though JPMorgan said Thursday that they could deed 7% "under immoderate scenarios."

"Markets person continued to ramp up bets successful favour of higher Bank of England involvement rates successful the past fewer days," Matthew Ryan, caput of marketplace strategy astatine planetary fiscal services steadfast Ebury, said via email. "Swap rates present spot a terminal BoE basal complaint of 6.5% by mid-2024 — a full of 150 further ground points of hikes."

That leaves owe rates poised to emergence further earlier coming down, adding to symptom for homeowners and further exacerbating the U.K.'s worsening rental situation arsenic buy-to-let landlords walk connected higher owe repayments to tenants oregon exit the marketplace entirely.

"With markets present forecasting a highest successful Bank Rate of implicit 6%, the likelihood is that owe rates volition stay higher for longer, and the compression connected household finances volition proceed to enactment downward unit connected location prices implicit the coming year," Halifax's Kinnaird said.