UK house prices increased by an average of 0.6% in the 12 months to July, down from a revised 1.9% in June, the latest government figures revealed yesterday.

The average UK house price was £290,000 in July, which was £2,000 higher than the corresponding month last year, but £2,000 below the recent peak recorded in November 2022, the Office for National Statistics (ONS) said.

However, the latest property prices data from the ONS does not necessarily reflect what is happening in the housing market right now, given that the house price index uses Land Registry data and is based on the average sold price of the average property, with transactions often taking months to complete.

Separate property price indices from Nationwide and Halifax report that house prices have already started falling.

Industry reactions:

Jeremy Leaf, north London estate agent, said: “This most comprehensive of all the house price indices provides an interesting snapshot of market activity as it also includes cash buyers who have proved so crucial lately now mortgages are so much harder to come by on competitive terms.

“However, the figures are a little dated so don’t yet show how some buyers and sellers are slowly emerging from the quieter-than-usual summer period taking heart from an expectation that base rates may be at or close to their peak. Today’s surprise drop in inflation won’t do any harm to that sentiment either.”

Chris Druce, senior research analyst at Knight Frank, commented: “The release from the ONS confirms that house prices continue to fall. We expect they’ll travel further still, with a reduction of 10% through the rest of this year and next. This is despite the growing expectation that we are near the top of the interest rate cycle, which has reduced buyers’ spending power and depressed activity in the UK housing market.

“However, improved confidence, strong wage growth, high employment by historic standards, the availability of longer mortgage terms and forbearance from lenders will place a floor on how low prices will go. While we expect a muted period ahead for the residential market we do not expect a cliff edge moment.”

Lucian Cook, head of residential research, said: “The surprise fall in inflation will be welcomed by both potential home buyers and those coming to the end of their fixed rate mortgages. While rates have eased back a little over the past couple of weeks, mortgage affordability at the point of purchase is still heavily constrained acting as a drag on buyer’s budgets.

“As a consequence, the total size of the housing market has contracted.  We saw the weakest quarterly spend in the housing market since the market reopened in June 2020 in the second quarter of this year. In total £81 billion was spent in Q2 this year, bringing the annual spend back to £406 billion, down from a peak of £521 billion in the year to Jun 2021.

“Our calculations suggest that cash buyers accounted for 44% of all spend in the housing market in the year to June; as mortgages became a less powerful source of funding. However, today’s inflation numbers should bring more economic certainty and confidence to lenders. This will give a further boost to competitive pricing in the mortgage markets and help buyers reliant on borrowing better compete with the cash buyers.”

Jason Tebb, CEO of OnTheMarket, remarked: “This data is a little historic but shows the continued, gentle slowdown in annual price growth in July, with the average property price still £2,000 higher than a year ago.

“The housing market continues to show remarkable resilience considering the economic uncertainty. Another fall in inflation is welcome, particularly as it was expected to rise on the back of higher fuel prices, but it was not a dramatic decline and the markets still expect another base rate rise this month.

“Affordability is a challenge for those relying on mortgages after consecutive interest rate rises, but while there may be fewer buyers as a result, our data shows they are highly motivated. As long as sellers take advice from a local agent and price sensitively, there is no reason why they can’t successfully transact.”

Iain McKenzie, CEO of The Guild of Property Professionals, commented: “Despite gloomy predictions, house price growth is still positive, and good news on inflation means that the market can be optimistic about autumn.

“Sellers may worry about the value of their home, but it’s important to remember that it‘s still worth much more than it was prior to the pandemic.

“Continuing buyer demand is helping hold up the market and keeping property prices buoyant in the face of challenging conditions.

“Yesterday’s inflation figures will add to downward pressure on mortgage rates, offering a welcome respite to first-time buyers and those nearing the end of fixed deals.

“Autumn is typically a busy season for estate agents, and there’s a few glimmers of hope that the end of the year will see the market turn.”

Nicky Stevenson, MD at Fine & Country, said: “As high borrowing costs continue to squeeze buyer budgets, the knock-on effect for sellers is reduced asking prices and an overall dampening effect on house price growth.

“The housing market is proving to be more resilient than expected, as buyers adapt to higher lending rates and sellers price their properties accordingly.”

Jonathan Hopper, CEO of Garrington Property Finders, commented: “There’s always a touch of the oil tanker turning in the official house price data, but the speed and scale of the downturn is now impossible to ignore. In the space of just 12 months, the annual pace of price rises has plunged from 13.8% to just 0.6%.

“It’s now only a matter of time before the index slips into negative territory, as on the property front line we’re regularly seeing homes sell for tens of thousands below asking price as proceedable buyers find themselves holding all the cards.

“Even the most optimistic sellers are having to accept that this is unequivocally a buyer’s market, albeit one in which the rising cost of borrowing has prompted many credit-reliant buyers to pare back their budgets or pause their moving plans.

“Nevertheless, there are two things to cheer as prices continue to slide. The first is that even as each passing month sees thousands of existing homeowners endure a painful jump in their mortgage costs, there’s no sign of the wave of distressed sales seen a decade and half ago.

“The second is that while some property types – typically new-builds in areas with lots of supply – are seeing prices plunge, average price falls remain relatively modest. This is still a correction, not a collapse.

“We haven’t yet reached the tipping point where prices have fallen far enough to cancel out the impact of more expensive mortgages and strict affordability criteria.

“For now, those who need and want to move are still doing so, albeit with a healthy dose of caution and while factoring price risk and higher borrowing costs into what they’re prepared to pay for a property.”

James Forrester, MD of Barrows and Forrester, said: “The true test of the property market is how sold prices are performing and, as it stands, we’re yet to see any notable dip in this respect. Certainly not the 30% crashes predicted by some industry ‘experts’.

“There’s no doubt the market is cooling due to a reduced level of market activity on the side of the nation’s buyers, but given the turbulent economic times of late, today’s figures can be viewed as extremely positive.”

Chris Hodgkinson, MD of House Buyer Bureau, added: “The property market has become an increasingly difficult place for buyers in recent months and this dent in market activity has caused the rate of house price growth to slow.

“Given the lagged nature of house price reporting a reduction could well be on the cards, however, a return to normality is no reason to run for the hills in anticipation of a market crash.”