In May, the average property value went down 0.4% to £296,648 as people felt the impact of the new stamp duty.
During May, UK house prices fell 0.4% to an average of £296,648, which is the steepest monthly drop in almost a year, as revealed by Halifax on Friday. The fall was much larger than the 0.1% expected by City economists, showing that the market is weaker than expected.
There was a third drop in four months, with May following a brief rise of 0.3% in April. The quarterly fall was 0.3% in June 2023, which was the largest since then, and the price growth over a year dropped to 2.5%, down from 3.2% in April and far below the expected 3% increase. The figure shows the lowest annual growth since July 2023.
The Effects of Stamp Duty Are Getting Worse
Amanda Bryden, head of mortgages for Halifax, pointed out that the decrease was due to the market becoming more normal after the stamp duty changes in England and Northern Ireland in April. Many buyers rushed to purchase homes in March since they wanted to finish deals before the new tax rates went into effect.
Although families are still feeling the pressure of rising costs and an unclear economy, the housing market has remained strong, according to Bryden. She mentioned that how the economy performs in the future will be affected by the speed of interest rate cuts, the strength of income growth, and broader inflation trends.
Because of the stamp duty holiday ending, the property market has become very distorted. Many of the properties offered during the pre-April rush are still unsold, which has resulted in too many homes on the market and lower prices.
Mortgage Market Experiences a Sharply Reduced Activity
The latest data from the Bank of England is causing growing concern about the market. Net residential mortgage approvals dropped again in April, reaching 60,500, which was lower than what economists had predicted and pointed to less borrowing activity in the future.
The drop in transaction volumes is even greater than the drop in prices. The data from HM Revenue and Customs reveals that only 64,680 houses were sold in April, which is a huge 64% decrease from March’s 177,440 sales. This is one of the biggest monthly contractions we have seen in a long time.
This decline in mortgage approvals is significant because it usually signals that the housing market will weaken in the future.
Industry Warning
Jeremy Leaf, who is based in London, said that market disruption will not go away anytime soon. He pointed out that the high number of sales made before the stamp duty holiday ended in March is still affecting the current market negatively.
Most of the stock that was on the market at that time, if it hasn’t been sold or put under offer, is still available, so prices will likely decrease. Still, deals are being made where both parties are most realistic about the situation.
It appears that the UK housing market will need to adjust for a long period, as the government’s temporary measures end and the economy remains uncertain with higher borrowing costs.
