UK house prices fall for sixth month running in September

Introduction: UK house prices fall 4.7% in year to September

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The downward pressure on house prices is likely to last into next year, lender Halifax has warned this morning, after reporting that UK house prices fell for the sixth month running in September.

The average property price fell by 0.4% last month, Halifax reports, a smaller fall than in August when it shrank by 1.8%. That extends a fall in prices, month-on-month, which began in April.

On an annual basis, prices fell by 4.7%, an acceleration on August’s 4.5% drop, and the biggest annual fall since August 2009 (when they fell -5.5%).

A chart of UK house prices — Photograph: Halifax

Recent house price falls mean the averge UK home has now dropped to levels seen in early 2022, at around £278,601.

They’re now 1% above their level in December 2021, when the Bank of England started raisig interest rates – but almost £40,000 above their pre-pandemic levels.

Prices have cooled following the jump in mortgage rates in 2022 and 2023. And although mortgage costs have fallen recently, demand from buyers may remain weak until rates fall further.

Kim Kinnaird, director of Halifax Mortgages, explains:

“Activity levels continue to look subdued compared to recent years, with industry data showing lower levels of new instructions to sell homes and agreed sales. Borrowing costs are the primary factor, given the impact of higher interest rates on mortgage affordability. Against this backdrop, homeowners inevitably become more realistic about their target selling price, reflecting what has increasingly become a buyer’s market.

However, with Base Rate now likely to be at or around its peak, we are seeing fixed rate mortgages deals ease back from recent highs. Wage growth also remains strong, which has helped with affordability, with the house price to income ratio now at its lowest level since June 2020 (6.2 in September vs 6.3 in August).

Many economists and financial markets predict that Base Rate will remain higher for longer, with any significant cuts appearing unlikely until inflation gets closer to the Bank of England’s 2% target. Overall, these factors are likely to keep mortgage rates elevated in comparison to recent years, constraining buyer demand and putting downward pressure on house prices into next year.”

Also coming up today

Financial investors worldwide are bracing for the latest US jobs report, due at lunchtime UK time.

September’s non-farm payroll is expected to show a small slowdown in hiring, with around 170,000 new hires, down from 187,000 in August.

But a strong report might alarm markets, as it would encourage America’s central bank, the Federal Reserve, to raise interest rates again.

The agenda

7am BST: Halifax house price index for September
9am BST: UN Food price index
1.30pm BST: US non-farm payroll for September

Key events

Exxon Mobil ‘in talks’ to buy Pioneer in $60bn mega-deal

Jillian Ambrose

US oil giant Exxon Mobil is reportedly in talks to acquire Texas-based shale producer Pioneer Natural Resources in a $60bn mega-deal, our energy correspondent Jillian Ambrose reports.

The acquisition would be Exxon’s largest deal since its merger with Mobil in 1999 and could be completed in the coming days, according to the Wall Street Journal, which first reported the talks late on Thursday.

The deal would hand Exxon a dominant position in the oil-rich Permian Basin of West Texas and New Mexico, in a significant boost to the company’s growth plans.

The oil giant made its first major move to dominate the US shale industry with a $30bn takeover of XTO Energy for about $30bn in 2010. Exxon has a market value of over $436bn.

Exxon in Talks to Buy Shale Driller Pioneer Natural in What Could Be 2023’s Biggest Deal

Shale-focused Pioneer has market value of about $50 billion

Any acquisition would likely be Exxon’s biggest since 1999#oott https://t.co/nW64290iZs

— Giovanni Staunovo🛢 (@staunovo) October 6, 2023

World food prices drop again

World food prices have dropped to a new 30-month low, despite a rise in sugar and cereal prices.

The UN’s FAO Food Price Index, which tracks a basket of food commodities, slipped to 121.5 points in September 2023, slightly below August’s 121.6.

That’s the lowest reading since March 2021, as food prices slip back from the record high set after the full-scale invasion of Ukraine.

A chart of global food commodity prices — Photograph: UN FAO

It found that vegetable oil prices fell 3.9% in September, due to lower world prices across palm, sunflower, soy and rapeseed oils

Dairy fell 2.3%, the 9th monthly fall in a row.

The report says:

Rising export availabilities in New Zealand in its new production season, limited internal demand in the European Union, and the impact of a weaker Euro against the United States dollar weighed on international dairy prices.

Meat prices were down 1%, due to lower demand for pork from China and abundant supplies of poultry.

But, there was a nearly 10% surge in the price of sugar on global markets last month, hitting the highest level since November 2010.

The report says:

The hike in prices mostly stemmed from increasing concerns over a tighter global supply outlook in the upcoming 2023/24 season. This mainly reflects early forecasts pointing to production declines in key sugar producers, Thailand and India, due to drier-than-normal weather conditions associated with the prevailing El Niño event.

Cereal prices rose 1%, due to various global factors, including:

….strong demand for Brazil’s supplies, slower farmer selling in Argentina and increased barge freight rates due to low water levels on the Mississippi River in the United States of America.

In the City, shares in insurance group Aviva have jumped almost 8% this morning, lifted by takeover speculation.

The Times reports this morning that at least two potential suitors are said to be examining Aviva, attracted by its excess capital and strong cash flow.

They add:

The talk is that the likes of Allianz of Germany, Intact Financial Corporation of Canada and the Scandinavian group Tryg are considering their options, with at least one mulling a £6 a share proposal.

An American insurer is also rumoured to be interested in Aviva, which last weekend revealed it was backing a £1 billion cancer research and treatment campus in London.

#AV. takeover chatter in The Timeshttps://t.co/HLem7BGJxq

The talk is that the likes of Allianz of Germany, Intact Financial Corporation of Canada and the Scandinavian group Tryg are considering their options, with at least one mulling a £6 a share proposal…

— entrustTMF (@entrustTMF) October 6, 2023

Moneyfacts: Fixed-rate mortgage costs dip

UK mortgage rates have continued to tiptoe lower, according to the latest data.

Moneyfacts reports that the average fixed-rate deals are slightly cheaper than yesterday.

Here’s the details:

The average 2-year fixed residential mortgage rate today is 6.42%. This is down from an average rate of 6.43% on the previous working day.
The average 5-year fixed residential mortgage rate today is 5.96%. This is down from an average rate of 5.97% on the previous working day.
There are currently 5,565 residential mortgage products available. This is up from 5,540 products the previous working day.

Andrew Wishart, an economist with Capital Economics, said he expected a further drop of 5% or 6% in UK house prices on top of the 5% decline already seen since their peak, Reuters reports.

Wetherspoons cheers return to profit

In other news this morning, pub chain JD Wetherspoon is celebrating a return to profitability.

Wetherspoon’s has recorded a pre-tax profit of £42.6m for the year to 30 July, up from a loss of £30.4m a year earlier.

Like-for-like sales grew by 12.7% year-on-year, as the sales recovery following the Covid-19 pandemic continued.

Tim Martin, the chairman of JD Wetherspoon, says the pub chain continues to perform well, with like-for like sales up 9.9% in the last nine weeks.

Martin adds:

“The company currently anticipates a reasonable outcome for the financial year, subject to our future sales performance.

He also argues that “the biggest threat to the hospitality industry is the possibility of further lockdowns and restrictions” (more here).

Wetherspoon has updated the market this morning with preliminary results showing it swung back into profit last year.

80% of Tim Martin’s accompanying statement is about lockdowns.

“Perhaps the biggest threat to the hospitality industry is the possibility of further lockdowns”

— Julian Harris (@Hariboconomics) October 6, 2023

The shortage of houses on the market should give price some support, points out Victoria Scholar, head of investment at interactive investor:

The fastest stream of rate rises from the central bank in recent history has made mortgages significantly less affordable, dampening demand for house purchases and in turn prices. Sellers are less incentivised to list their properties too with prices coming down.

With interest rates set to remain higher for longer, there’s likely to be ongoing pressure on house prices ahead. However with the Bank of England keeping rates on hold at its most recent decision, strong wage growth and recent cuts to fixed rate mortgage deals, conditions have been improving slightly this month. And a shortage of housing supply in the UK is likely to stem an even steeper downturn in property prices.”

Economic forecasters at the EY ITEM Club predict that UK house prices will “continue drifting down”.

They point out that UK interest rates look to have peaked much lower than many had expected only a few months ago, after the Bank of England left rates on hold in September.

Martin Beck, chief economic advisor to the EY ITEM Club, says:

“The Halifax measure of house prices continued its downward trend by falling 0.4% month-on-month in September. This was the sixth consecutive monthly decline and left prices 4.7% lower than a year earlier and 5.1% down on the peak in the Halifax measure in June 2022. That said, September’s fall was less marked than a 1.8% decline in August.

“With the Nationwide measure flatlining in September, the latest house price data points to a market gently deflating, not crashing. And the EY ITEM Club thinks that will likely characterise the housing market over the rest of this year and into 2024.

“The Bank of England’s decision to pause interest rate increases in its last meeting means the current rate rise cycle has likely peaked at a level much lower than many anticipated only a few months ago. Quoted mortgage rates edged down in response to the positive inflation numbers released in September and that fall has picked up since the Bank of England decision. Meanwhile, lower house prices, combined with still-strong growth in pay, means the ratio of house prices to incomes has fallen by more than a tenth since 2022’s peak, improving affordability in some respects.

Jeremy Leaf, north London estate agent, reports that business is “bumping along at a new, lower level”.

Buyers and sellers are encouraged partly by expectations of lower interest rates, Leaf says, while rising rents are making it more expensive in the lettings market.

Leaf also points out that Halifax’s data is based on approved mortgages, so doesn’t catch cash buyers:

These figures, though historically reliable, look at mortgage approvals rather than completions, while the country’s largest lender doesn’t include cash purchasers either, which make up an increasingly important part of the market.

There is more financial pain ahead for the housing market, points out Tom Bill, head of UK residential research at Knight Frank, as mortgate holders roll off existing fixed-rate deals and face higher borrowing costs.

Commenting on today’s Halifax house price report, Bill says:

The fact rising interest rates have caused a house price correction was predictable but the extent of the recent volatility was not. The combination of the mini-Budget and fourteen consecutive rate rises have taken their toll on demand but buyers and sellers should return in greater numbers as a sense of stability returns.

The financial pain entering the system will continue next year as people roll off fixed-rate deals, but there will be an improvement in sentiment, that vital lubricant in the housing market.

We therefore think most of the UK’s house price correction will happen this year and modest single-digit annual growth will return after the next general election.”

Alice Haine, personal finance analyst at investment platform Bestinvest, predicts the housing market will remain “subdued” until 2024, saying:

“The decline in Britain’s property market accelerated in September, according to the latest Halifax House Price Index, with prices falling 4.7% on the year, a faster slide than August’s 4.5% as affordability challenges dampened buyer demand and sellers increasingly slashed asking prices to secure a sale.

The monthly data was also downbeat with prices falling 0.4% in September, albeit at a slower pace than August’s 1.8% drop, taking the average price of a home to £278,601. The housing market is expected to remain subdued into the next year as the drag effect from the Bank of England’s 14 interest rate hikes delivers a heavy blow to affordability levels. While some buyers have been forced to reduce the size and value of the home they purchase to afford mortgage repayments, others are abandoning moving plans altogether.

There is some reason for optimism in the market, however. Mortgage rates have eased over the summer from their July peak with the average two-year fixed rate now below the 6.5%* mark and the average five-year fixed rate nudging below 6% as interest rate expectations improve and lenders compete more aggressively for business.

House prices under greatest pressure in South East England

House prices have fallen in all UK nations and the nine English regions, on an annual basis.

They’re falling fastest in the South East of England, and slowest in Northern Ireland.

Halifax reports:

Prices are under the greatest downward pressure in the South East of England, falling by -5.7% over the last year (average house price of £376,450). Northern Ireland currently has the most resilient house prices, down by just -0.2% compared to this time last year (average house price of £184,108), a fall of less than £400.

Scotland also experienced a relatively modest annual decline of -0.8% (average house price of £201,594). Wales saw property prices fall by -3.6% over the last year (average house price of £214,585).

London remains the most expensive place in the UK to purchase a home, with an average property price of £525,678.

With prices down by -4.8% over the last year, it has seen the biggest fall of any region in cash terms (-£26,514).

Avg house prices fell for the 6th consecutive month in Sep 23 by -0.4% to £278,601, a -4.7% drop annually. All regions registered declines but Northern Ireland remains the most resilient, down by only -0.2% whilst the South East is the most exposed dropping -5.7% @HalifaxBank pic.twitter.com/QEgzJj6EOx

— Emma Fildes (@emmafildes) October 6, 2023