Shocking Slump in UK House Prices: What It Means for Buyers and Sellers

In June, UK house prices experienced their largest monthly decline in over two years, dropping by 0.8% according to mortgage lender Nationwide. This decrease, the most significant since February 2023, may be attributed to a dip in demand following changes to stamp duty implemented in April. Despite this monthly fall, prices are still up 2.1% year-on-year; however, this represents the slowest growth rate observed in nearly a year.

Robert Gardner, Nationwide’s chief economist, believes that the market conditions for potential homebuyers remain supportive. He points out that low unemployment, rising earnings, and the possibility of decreasing borrowing costs due to potential interest rate cuts from the Bank of England could stabilize the market. The stamp duty changes now require buyers in England and Northern Ireland to pay the tax on transactions over £125,000 (previously £250,000), while first-time buyers are taxed on properties exceeding £300,000. This is a significant shift from earlier regulations which exempted homes up to £425,000 for first-time purchasers.

Matt Swannell, chief economic adviser to the EY Item Club, mentions that fluctuations in monthly house prices can be exaggerated by such tax reforms, as seen in rushed transactions before the changes. He observes that the market has entered a soft patch since the tax adjustments but anticipates a resurgence of activity due to increasing mortgage approvals.

Rosie Hooper, a chartered financial planner, notes that the housing market is still adjusting to the new stamp duty landscape, predicting that its initial shock will soon dissipate, leading to more stability for both first-time buyers and those moving homes.

The overall landscape of the housing market reflects the broader economy, with many individuals delaying transactions due to uncertainties regarding jobs and wages. The mortgage market remains stable but unremarkable; however, the potential for further interest rate cuts is spurring competition among lenders. Despite these challenges, first-time buyers face hurdles in accumulating deposits while also grappling with high rental costs.