UK house prices may fall further despite January stability

(Alliance News) - UK house prices may fall further in the coming months, analysts at Capital Economics predicted on Tuesday.

While prices were largely unmoved last month, according to figures from Halifax, Capital Economics does not believe this should be seen as a sign that the housing market will enjoy some stability after a recent slowdown.

According to Halifax's house price index, house prices registered no monthly change in January. Market consensus, according to FXStreet, had been expecting a 0.4% rise. January's reading follows a 1.3% monthly fall in December and a 2.4% drop in November.

Capital Economics analyst Andrew Wishart said: "We suspect that the pause in house price falls in January reported by Halifax will prove temporary. Despite the slight decline in mortgage rates, affordability still looks far too stretched for house prices to have reached a trough."

The typical UK property now costs GBP281,684, little changed from GBP281,713.

Research house Capital Economics said that while mortgage rates have shrunk recently, borrowing costs are still historically high.

"Even though the average quoted mortgage rate probably eased from a peak of 5.7% in October to 4.8% by January, mortgage payments for a typical first-time buyer would still be very high at 51% of the median full-time salary, well above the long-run average of 41%," Wishart added.

On an annual basis, UK house prices were 1.9% higher in January - the lowest level of growth in the last three years. In December, prices saw annual growth of 2.1%.

Compared to the peak back in August, house prices are 4.2% lower.

Prices are likely to have not reached their "trough" yet, however. Wishart said "affordability still looks far too stretched" for prices to have bottomed out.

Mortgage rates have been on the up since an ill-fated fiscal plan spooked investors and contributed to the departures of ex-chancellor Kwasi Kwarteng and former prime minister Liz Truss last year.

The 'mini-budget' sent the pound into free-fall, bond markets into a tailspin and raised borrowing costs in autumn.

Analysts at Daiwa Capital Markets commented: "Given the surge in mortgage rates since the summer, the housing market remains a key downside risk to the UK economic outlook. And while today's Halifax house price index suggested some stability in January, with prices unchanged on the month, this followed significant weakening at the end of last year."

By Eric Cunha, Alliance News news editor

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