U.K. Home Prices Fall for First Time Since June 2021 - Halifax

© Reuters.

By Scott Kanowsky 

Investing.com -- U.K. home prices dropped for the first time in a year in July, signaling a potential slowdown in activity in the country's housing market as buyers face higher interest rates and surging inflation.

House prices fell slightly by 0.1% during the month, the first decline since June 2021, according to a closely watched index from mortgage lender Halifax. The average price came in at £293,221, down £365 from a record high touched in the prior month.

Meanwhile, annual inflation eased marginally to 11.8% from 12.5%.

“While we shouldn't read too much into any single month, especially as the fall is only fractional, a slowdown in annual house price growth has been expected for some time," said Halifax managing director Russell Galley in a statement.

"Leading indicators of the housing market have recently shown a softening of activity, while rising borrowing costs are adding to the squeeze on household budgets against a backdrop of exceptionally high house price-to-income ratios."

Galley noted that prices are more than £30,000 higher than this time last year, as recent drivers of buoyant housing markets - including pandemic savings, changes to how people use their homes, and investment demand - remain evident.

But he predicted that these tailwinds will give way to more rate hikes and cost-of-living pressures, making a slowing of annual house price inflation the "most likely scenario."

Friday's data comes after the Bank of England raised its key refinancing rate by 50 basis points - its biggest increase in nearly three decades - in a bid to cool down red-hot inflation. The BoE said the move was spurred by a new forecast that sees consumer prices in the U.K., which currently stand at a more than 30-year high of 9.4%, surging to over 13% by the fourth quarter.