Are house prices falling and is now a good time to buy a house?

With rises being recorded every month since June 2021, are house prices now falling?

Row of traditional English terraced houses with a for sale sign in Crouch End, north London
(Image credit: Getty Images)

House prices have been growing strongly over the last 12 months, but are house prices falling as we head into the autumn?

House prices work on supply and demand. Where demand is high and supply is low, asking prices rise, and on the other hand, when supply is high but demand is low,  prices come down. And right now, supply is short. 

During the pandemic, with many homeowners wanting to move to more rural locations, or to ease space pressures thanks to the mandate to work from home, the government introduced a stamp duty holiday, which waived the need to pay stamp duty on the first £500,000 of all property sales. The stamp duty holiday ended on 30 September, but that hasn’t prevented house prices from continuing to grow. 

But with the cost of living crisis looming large over families and the likelihood of the UK falling into recession (opens in new tab), are house prices about to fall?

Russell Galley (opens in new tab), Managing Director, Halifax, said: “Some of the drivers of the buoyant market we’ve seen over recent years – such as extra funds saved during the pandemic, fundamental changes in how people use their homes, and investment demand, still remain evident. The extremely short supply of homes for sale is also a significant long-term challenge but serves to underpin high property prices.

Are house prices falling?

Whether house prices are falling or not, depends on which House Price Index you look at. According to the Halifax House Price Index for July 2022 (opens in new tab), the average house price has fallen by 0.1% which it says is the first decrease since July 2021. Rightmove’s House Price Index (opens in new tab) similarly reports a 1.3% drop in house prices in August. 

But the reason why house prices are falling is seasonal, according to Rightmove. Tim Bannister (opens in new tab) , Rightmove’s Director of Property Science, said: “A drop in asking prices is to be expected this month, as the market returns towards normal seasonal patterns after a frenzied two years, and many would-be home movers become distracted by the summer holidays. 

“Indeed, for those that can, this may be their first summer holiday abroad since before the pandemic.”

But while the drop is small, Russell Galley, Managing Director at Halifax, argues that it could be a sign of things to come: “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. 

“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. 

“Looking ahead, house prices are likely to come under more pressure as those market tailwinds fade further and the headwinds of rising interest rates and increased living costs take a firmer hold. Therefore a slowing of annual house price inflation still seems the most likely scenario.” 

However, not all price indices suggest a drop in house prices,. Nationwide’s House Price Index (opens in new tab) showed a 0.1% increase in house prices in July 2022 compared to June 2022. But that doesn't mean a drop isn't on the horizon. Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said: “The housing market has retained a surprising degree of momentum given the mounting pressures on household budgets from high inflation.

“The limited stock of homes on the market has helped keep upward pressure on house prices.

“We continue to expect the market to slow as pressure on household budgets intensifies in the coming quarters, with inflation set to reach double digits towards the end of the year. Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.”

What is the average house price in the UK?

Understanding what the average house price is again depends on which House Price Index you look at. According to the Nationwide House Price Index, the average house price in July 2022 was £271,209, up 0.1% on the previous month, and up 11% compared to July 2021. 

The Halifax House Price Index calculates the average house price at £293,221. This is almost 12% more than in July 2021, and 0.1% lower than June 2022. 

Zoopla’s index suggests the average was £256,600 in July 2022. This is just over 8% more than in July 2021 and around 2% more than in June 2022. 

Rightmove’s latest calculation puts the average house price at £365,173 for August 2022. 

House Price IndexAverage house price July 2022
Nationwide£271,209
Halifax £293,221
Zoopla £256,600
Rightmove £365,173 (August 2022)

Is now a good time to buy a house?

Whether there is a cost of living crisis or not, buying a house is likely to be the single largest expenditure of your life. But if you are looking to buy a house, you need to be aware how the cost of living crisis, high inflation and looming recession could impact your plans. 

The Bank of England has raised interest rates to combat soaring inflation, which is at a 40-year high. The Bank Rate, also known as the base rate, influences how much other banks charge for you to borrow money with them. This ultimately means that as the Bank Rate increases, it’ll cost you more to borrow money on your mortgage, even if house prices come down. 

With a recession highly likely, lenders are also focusing on buyers they deem less risky. This means that those with poor credit histories could find it harder to get a mortgage, or at least the ones with the best rates. 

If you are thinking of buying your first home or moving on from your current home, speak to a mortgage adviser to assess whether it’s the right time for you.