House prices have fallen at their fastest rate in 12 years, declining by 2.6 per cent over the past year to June, data from Halifax shows.
It comes at a time when mortgage rates continue to rise with the average two-year fixed mortgage now standing at 6.54 per cent while a five-year fix is 6.04 per cent, according to data from Moneyfacts, with rates expected to increase further in the coming weeks.
Experts believe we are already starting to see a significant dampening to house prices, which, if interest rates continue to be increased, could lead to a major correction if not a crash.
i reveals what this means for both homebuyers and those looking to sell.
What does it mean for buyers?
Falling house prices for buyers is technically good news. It means they are able to get more property for their money, buying a larger home for a lower asking price when comparing to what it would have fetched a year prior.
While it means that when they are selling their own home they may get less for the property, those looking to upsize will still benefit as they will likely save on a bigger property.
For example, if their home would usually be valued at £300,000 but sells for £288,000 – a reduction of 4 per cent – if the same reduction was made on a £400,000, they could buy for £384,000 – losing £12,000 on their home but getting a larger one for £16,000 cheaper.
It’s not all good news for buyers though as experts say they still need to be “realistic” when it comes to purchasing.
This could mean re-evaluating what you can now afford in the current economic climate.
Nathan Emerson, CEO of Propertymark, said: “Buyers are still making a healthy gain on the sale of their homes giving them the much-needed boost to progress throughout the property ladder.
“However, given the unsustainable and unrealistic peak in property prices during the pandemic, buyers should be aware they can no longer test the market at extensive levels. Instead, they will need to be more realistic or be open to offers to achieve a sale in line with the emerging market conditions.”
They will also need to be ready to make offers quickly.
Nick Mendes of brokers John Charcol said: “If the price is right and the mortgage is affordable, there is no time better than the present. It’s impossible to second guess when property prices will bottom out and when rates will come down to coincide at the same time. Property is a long term investment and history shows you will inevitably be better off in the long term.”
Those who don’t need to move quickly will likely take some time to wait and see what happens in the market. With mortgage rates continuing to rise, some will decide to hold off buying until they calm down.
However, first time buyers, who are currently stuck with ever increasing rents, may still feel that opting to buy now would be the best option, according to housing market analyst Neal Hudson.
“For some people, particularly first time buyers, the terrible state of the private rental market means that taking a gamble and buying now might be an attractive proposition.”
Others looking to buy soon should also consider what would happen if there is a further dramatic drop in house prices and whether this could wipe out the value of your deposit and leave you in negative equity, something that occurs when the value of a property becomes less than the mortgage originally taken out for it.
Speaking to a broker should help the decision-making process but, ultimately, whether to buy will depend on someone’s individual circumstances.
What does it mean for sellers?
Buyers that put their plans on the back burner if they do not think they can afford the higher monthly mortgage rates anymore is something that has a knock-on effect for sellers.
Fewer property sales are being agreed, more of those sales are falling through and far more sellers are changing their asking prices than usual, according to new data from analytics company TwentyCi, which operates the UK’s largest homemover database.
As a result of a drop in agreed sales, sellers may have to reduce their prices more than they initially wanted in order to get it off the market.
Alternatively, they may also decide to delay selling and stay where they are.
This could also be encouraged by the difficulties that can be encountered in a market downturn. For example, if one buyer pulls out a whole chain often collapses because that buyer can’t easily be replaced at an acceptable price to the vendor.
Sellers who do decide to persevere will need to be realistic with their asking price, experts say.
Mr Mendes said: “While it is custom to list the property price higher to test the market and see what bids you may attract, sellers will need to be in tune with market conditions and try to compare this year to previous.”
