- February saw a 0.5% month-over-month decline, with prices now 3.7% lower than their peak in August 2022, as higher mortgage rates and a crisis in the cost of living continued to deter home buying.
- “The recent string of weak home price data began with the financial market turbulence in response to the mini-budget in late September last year,” said Nationwide Chief Economist Robert Gardner.
March 1, 2023: UK house prices experienced their strongest annual decline since 2012 in February, according to Nationwide.
Christopher Furlong | Getty Images News | Getty Images
LONDON — UK house prices fell 1.1% annually in February, their first annual decline since June 2020 and the sharpest contraction since November 2012, according to a widely viewed report from Building Society Nationwide.
February saw a 0.5% month-over-month decline, with prices now 3.7% lower than their peak in August 2022, as higher mortgage rates and a crisis in the cost of living continued to deter home buying.
“The recent string of weak home price data began with the financial market turbulence in response to the mini budget in late September last year,” Nationwide Chief Economist Robert Gardner said in a press release Wednesday.
“While financial market conditions normalized some time ago, activity in the housing market has remained subdued.”
Mortgage rates rose in September 2022 after former Prime Minister Liz Truss’s disastrous ‘mini-budget’ tax cut led to a historic sell-off in the UK government bond market, ultimately leading to Bank of England intervention and Truss’s resignation after 44 days in office .
The February decline likely reflects ongoing damage to confidence and pressure on household incomes, with inflation continuing to outpace wage growth and mortgage rates remaining significantly above their 2021 lows, Gardner explained.
“It will be difficult for the market to regain much momentum in the near term as economic headwinds appear to remain relatively strong, with the labor market widely expected to weaken as the economy contracts in the coming quarters, while mortgage rates well above the 2021 lows,” he said.
Mortgage payments for a typical home remain well above the long-term average as a portion of the take-home pay for a potential first-time buyer earning the average income, Nationwide noted.
Meanwhile, security deposits remain “prohibitively high” in the context of the rising cost of living and a sharp rise in private rental costs.
“However, conditions should gradually improve if inflation eases as expected in the coming months, easing pressure on household budgets,” Gardner said.
“Sturdy increases in nominal incomes coupled with weak or falling house prices will also support housing affordability, especially if mortgage rates turn lower in the coming month.”
Analysts predict a drop in house prices from 10% to as much as 30% in one scenario this year.
Shares of UK homebuilders fell across the board on Wednesday morning, led by a 9% plunge for Persimmon.
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