Britain’s residential property market slump deepened, with figures from two of the top mortgage lenders indicating home prices falling at the fastest pace since 2009 and warnings of worse to come.
(Bloomberg) — Britain’s residential property market slump deepened, with figures from two of the top mortgage lenders indicating home prices falling at the fastest pace since 2009 and warnings of worse to come.
Halifax said Thursday the average value of a home fell 1.9% in August alone to £279,569 ($349,570), the sharpest monthly pace since November. It left prices 4.6% lower than a year ago when the value of UK property peaked.
The findings echo those of rival lender Nationwide Building Society last week, and together those reports suggest the UK property market is about half way through a 10% drop economists forecast. Bank of England Governor Andrew Bailey last night warned that much of the impact of a surge in interest rates has yet to hit the economy.
“We do expect further downward pressure on property prices through to the end of this year and into next,” Kim Kinnaird, director at Halifax Mortgages, said in a statement Thursday. “There is always a lag-effect where rate increases are concerned, and we may now be seeing a greater impact from higher mortgage costs flowing through.”
The Bank of England has raised interest rates 14 times since late 2021 to tame inflation, and that’s straining the finances of consumers already hit with higher food and energy bills.
The slump in the housing market highlights a risk to Prime Minister Rishi Sunak’s government as it prepares for an election widely expected next year. Falling prices are unsettling property owners, who have grown accustom to steady increases over the past decade. Economists say the downturn is likely to intensify in the second half of this year.
“High mortgage rates will mean demand remains very weak while previously tight supply of second-hand homes on the market is easing,” said Imogen Pattison at Capital Economics. “We anticipate house prices to continue to drop until mid-2024.”
Bailey last night signaled that the quickest tightening in rates in three decades may be near an end, noting that the economy is starting to show strains from hikes that started in 2021.
“We’ve definitely got a substantial amount of transmission to come,” Bailey told lawmakers Wednesday in London.
The latest decline interrupts a sharp surge in property prices that followed the Covid-19 pandemic, when buyers bid up the cost of bigger homes with outdoor space and room for an office. Kinnaird noted that even after the decline, the average price remains about £40,000, or about 17% higher than they were before the first lockdown.
The correction so far is well short of the slump in the early 1990s, when prices fell for years in a row leaving millions of people living in houses well below the value they borrowed to move in.
The biggest drops were recorded in the South East of England, where prices fell 5% from a year ago. Nationwide, affordability levels now match June 2020 levels, though some of that will be offset by the higher cost of loans. London prices fell the most in cash terms — down £22,777 from a year ago — and fell at an annual pace of 4.1%.
“House prices have proven more resilient than expected so far this year,” Kinnaird said. “The pace of decline remains in line with our outlook for the year as a whole.”
- UK House Prices Fall the Most in 14 Years, Nationwide Says
- UK Property Sellers Cut Asking Prices at Sharpest Pace This Year
- London House Prices Record the First Annual Drop Since 2019
–With assistance from Andrew Atkinson.
(Updates with details from the report.)
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