UK house prices show biggest annual fall in a decade

March 1, 2023: UK property prices suffered their biggest annual fall since 2012 in February, according to Nationwide.

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LONDON — UK house prices fell 1.1% a year in February, their first annual decline since June 2020 and the biggest contraction since November 2012, according to a widely watched report from construction firm Nationwide.

February saw a 0.5% drop month-on-month, with prices now 3.7% below their August 2022 peak, rising mortgage rates and the cost of living crisis continuing to discourage home buying.

“The recent string of weak house price data began with the turbulence in financial markets in response to the mini-budget at the end of September last year,” Nationwide chief economist Robert Gardner said on Wednesday. , in a press release.

“While financial market conditions normalized some time ago, activity in the housing market has remained subdued.”

Mortgage rates soared in September 2022 after former Prime Minister Liz Truss disastrous “mini-budget” of tax cuts caused a historic sell-off in the UK government bond market, ultimately leading to a bank of england intervention and the resignation of Truss after 44 days in office.

February’s plunge likely reflects continued damage to confidence and the squeeze on household incomes, with inflation continuing to outpace wage growth and mortgage rates remaining significantly higher than their 2021 lows, Gardner said.

“It will be difficult for the market to regain much momentum in the near term, as economic headwinds are expected to remain relatively strong, with the labor market widely expected to weaken as the economy contracts over the past few months. coming quarters, while mortgage rates remain well above the lows prevailing in 2021,” he said.

Mortgage payments on a typical home remain well above the long-term average as a share of take-home pay for a potential first-time buyer earning the average income, Nationwide noted.

At the same time, deposit requirements remain “at a prohibitive level” against the backdrop of the rising cost of living and a sharp rise in private rental costs.

The last bank of england Figures on Wednesday showed UK mortgage approvals fell in January to their lowest level since 2009 excluding the Covid-19 pandemic period, with net mortgage loans to individuals declining to £2.5 billion ($3 billion) from £3.1 billion in December.

Net mortgage approvals fell for a fifth consecutive month to 39,600, the lowest since January 2009, excluding the pandemic era in which the housing market ground to a halt.

“However, conditions should gradually improve if inflation moderates in the coming months as expected, easing pressure on household budgets,” Gardner said.

“Solid nominal income gains as well as weak or falling house prices will also support housing affordability, particularly if mortgage rates drop slightly over the coming month.”

Analysts have forecast house price declines for the year from ten% as much as 30% in a scenario.

Shares of British homebuilders fell across the board on Wednesday morning, led by a 9% drop for Khaki.

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Andrew Sheets, chief multi-asset strategist at Morgan Stanley, told CNBC on Wednesday that falling house prices show that monetary policy tightening by central banks to contain inflation was starting to work.

“I think that tells us that monetary policy is acting with a lag, but it’s also acting in a relatively straightforward and predictable way by slowing house price appreciation, weakening house prices, and we think that this is one of many headwinds to the UK economy, so we continue to be below consensus in our UK growth forecast this year,” he said, adding that the weakness was part of a “global trend”.

“We are also seeing that the previously resilient US housing market is also experiencing weakness as interest rates have risen and these are big interest rate hikes – these are some of the biggest hikes in the mortgage rates that the UK consumer or the US consumer has seen over the last 30 years, over the last 12 months, and that’s going to have an effect.”

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