UK house prices slide at sharpest annual pace since 2012
UK HOUSE prices fell at their sharpest annual pace since 2012 last month, steepening a downturn sparked by a jump in mortgage rates.
The average cost of a home last month fell 1.1 per cent from a year ago, after a gain of the same size in January, said the Nationwide Building Society on Wednesday (Mar 1). This marked the sixth consecutive monthly drop in prices, and the first annual decline since June 2020.
“It will be hard for the market to regain much momentum,” Robert Gardner, Nationwide’s chief economist, said on Wednesday. “Headwinds look set to remain relatively strong, with the labour market widely expected to weaken as the economy shrinks in the quarters ahead, while mortgage rates remain well above the lows prevailing in 2021.”
The report points to a tightening squeeze on consumer spending power after inflation jumped to its highest in 41 years, prompting an unprecedented series of interest-rate hikes from the Bank of England (BOE). That pushed up the cost of borrowing to levels not seen since the global financial crisis more than a decade ago.
“The largest annual decline in the Nationwide house price index since 2012 highlights how higher mortgage rates and the biggest squeeze on real incomes in a generation is hitting the housing market hard. We remain positive of our long-held view that UK home values will drop by around 10 per cent in 2023, from the September 2022 peak.”
A separate report from the British Retail Consortium showed that prices in UK stores rose at their strongest pace since at least 2005, forcing consumers to pay more for a smaller basket of goods.
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“Retail prices across the board continued to react to the impact of soaring energy bills, higher running costs and tougher trading conditions brought about by the war in Ukraine,” said Helen Dickinson, chief executive officer at the BRC. “Prices will remain high over the coming months.”
After soaring through the pandemic when the BOE’s key rate was near zero, house prices started sliding late last year, and now have clocked up their longest run of monthly declines since 2008 to 2009.
Despite the fall in house prices, homes are still becoming more unaffordable for first-time buyers, due to higher mortgage rates and shrinking real wages. The average value of a home was £257,406 (S$417,691), 3.7 per cent lower than the August 2022 peak.
Nationwide said that mortgage payments on average consumed 39.4 per cent of take-home pay, the most since the financial crisis, and well above the long-run average of 29.4 per cent.
“For a prospective first-time buyer earning the average income looking to buy the typical home, mortgage payments remain well above the long-run average as a share of take-home pay,” Gardner said. Deposit requirements were also “prohibitively high” for many.
Nationwide’s report agrees with other surveys pointing to a weakening in the market. Homebuyers are getting the edge in the UK property market, as sellers cut their asking prices to get deals done.
The average discount to asking price to achieve a sale was 4.5 per cent in February, as indicated by a report from property portal Zoopla. That is the most in more than five years, and up from 0.4 per cent in 2022, and 0.6 per cent in 2021.
But Nationwide diverged from data published by property portal Rightmove last month, which suggested that asking prices were unchanged. This could suggest a growing divide between what sellers want, and what buyers are willing to pay. BLOOMBERG
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