UK house prices post biggest annual drop since 2011, as mortgage costs climb – business live

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

UK house prices fell at the fastest annual pace since June 2011 last month, Halifax reports this morning, as interest rate rises cool the market.

The latest healthcheck on the UK housing market found that the average price of a home sold in June fell by 2.6% year-on-year, the largest drop in 12 years on Halifax’s index.

That follows a 1.1% fall in the year to May.

On a monthly basis, prices dipped by 0.1%, taking the average price to £285,932.

Kim Kinnaird, director at Halifax Mortgages, says:

With very little movement in house prices over recent months, this rate of decline largely reflects the impact of historically high house prices last summer – annual growth peaked at +12.5% in June 2022 – supported by the temporary Stamp Duty cut.

Despite June’s dip, average house prices are actually up by +1.5% (or £4,000) so far this year. Most of that growth came in the first quarter of 2023, following the sharp fall in prices we saw at the end of last year in the aftermath of the mini-budget.

However, Kinnaird warns that the housing market remains sensitive to volatility in borrowing costs, adding:

Concerns about persistent inflation have led to a significant increase in the cost of funding. Coupled with base rate rising by another 50bp, this contributed to a big jump in typical mortgage rates over the last month.

“The resulting squeeze on affordability will inevitably act as a brake on demand, as buyers consider what they can realistically afford to offer. While there’s always a lag effect when rates go up, many existing mortgage holders with variable deals or rolling off fixed rates will likely face an increase in the next year.

Yesterday, financial data provider Moneyfacts reported that the average two-year fixed rate mortgage rose again to 6.52%, the highest since last October.

Reaction to follow….

Also coming up today

Financial markets are on edge after a sharp selloff in shares and bonds yesterday. It knocked the UK’s FTSE 100 down by 2.2% to its lowest closing level since last November, while government borrowing costs soared to a 15-year high.

The rout was triggered by fresh fears of higher interest rates, after US companies added many more jobs than expected last month, around 497,000.

Asia-Pacific stock have joined the selloff today, with Japan’s Nikkei down 0.5%.

Today we get the official US jobs report. which was expected to show an increase of 225k jobs, down from May’s 339K.

A strong jobs report could cause more market jitters, as good economic news will spur central banks to keep tightening policy.

The agenda

• 7am BST: Halifax house price index for June

• 7am BST: German industrial production for May

• 9.30am BST: An overview of UK productivity in January to March 2023

• 1pm BST: US

• 1.30pm BST: US non-farm payroll jobs report for June

• 3.30pm BST: Bank of England interest rate-setter Catherine Mann speaks in a panel discussion in New York