UK house prices suffer biggest fall in more than a decade as higher interest rates bite

UK home costs registered the biggest decline in additional than a decade final month as greater rates of interest and the broader value of dwelling disaster hit demand, in line with a intently watched survey.

Property costs fell 1.1 per cent in February in contrast with the identical month final yr, the largest drop since November 2012, and a reverse of a 1.1 per cent enhance in January, mortgage supplier Nationwide stated on Wednesday. Economists polled by Reuters had anticipated a fall of 0.9 per cent.

It was the primary annual contraction since June 2020 when the housing market was successfully shut throughout the Covid-19 lockdown. Robert Gardner, Nationwide’s chief economist, stated the drop in costs mirrored low purchaser confidence “in addition to the cumulative influence of the monetary pressures which were weighing on households for a while”.

The weak state of the housing market was underlined by separate Financial institution of England knowledge that confirmed mortgage approvals for home purchases fell to 39,600 in January, down from 40,500 the earlier month and the bottom since Might 2020. Excluding the onset of the Covid-19 pandemic, this was the bottom degree of approvals since January 2009, when Britain was mired in recession following the banking disaster.

Individually, Persimmon, one of many UK’s largest housebuilders, warned on Wednesday that gross sales of latest properties may fall as a lot as 40 per cent this yr if excessive mortgage charges and financial uncertainty continued to depress purchaser demand.

The typical rate of interest on new mortgages rose to three.9 per cent in January, the very best since 2010, BoE knowledge confirmed, with the markets nonetheless anticipating additional rises in rates of interest because the central financial institution seeks to rein in inflation.

The typical home value fell to £257,406 in February, down from a peak of £273,751 in August, however nonetheless £41,000 above degree of January 2020, earlier than the pandemic hit.

Home costs had been down 0.5 per cent on January, the sixth consecutive month-to-month decline because the August peak, marking the longest interval of contraction since 2009.

Adjusted for inflation, home costs have fallen 11 per cent from their peak and are under their pre-pandemic degree, which compares with a fall in actual phrases of 19 per cent between 2007 and 2009, in line with Andrew Wishart, senior property economist at Capital Economics.

Luke Thompson, mortgage adviser at PAB Wealth Administration, stated: “[Sellers] have needed to grow to be extra accustomed to the truth that they could not obtain the total asking value for his or her property as we aren’t seeing a number of individuals bidding for a property like we had been on the finish of 2021 and into 2022.”

Many economists assume the slowdown within the property market will proceed for some months. “Will probably be onerous for the market to regain a lot momentum within the close to time period since financial headwinds look set to stay comparatively robust,” Gardner stated.

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, stated home costs would “proceed to say no over the following six months or so, leading to a peak-to-trough fall of about 8 per cent”. Nonetheless, she anticipated home costs to return to enlargement in 2024 if the BoE began decreasing rates of interest and vitality value pressures eased.

Nationwide tracks home costs based mostly on the mortgage it points, offering probably the most well timed measure of property values.

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