UK house prices fall more sharply after mortgage costs jump
HOUSE prices in the UK are falling more sharply than expected after demand was quelled by a jump in borrowing costs, the Nationwide Building Society said.
Prices fell 1.4 per cent in November, well over the 0.4 per cent drop expected by economists. This was the second decline in as many months, and the fastest drop since June 2020. Excluding the Covid-19 pandemic, prices have not fallen this sharply since the global financial crisis more than a decade ago.
The cost of home loans has soared above 6 per cent in recent weeks, from around 1 per cent a year ago. The jump was driven by an increase in the Bank of England’s benchmark lending rate, and concerns among investors about slowing growth and rising government debt. While costs for borrowers have retreated from their peak, they are still likely to remain well above the levels that buyers enjoyed over much of the past decade.
Robert Gardner, chief economist at Nationwide, said on Thursday (Dec 1): “Interest rates for new mortgages remain elevated, and the market has lost a significant degree of momentum. Housing affordability for potential buyers and home movers has become much more stretched at a time when household finances are already under pressure from high inflation.”
The average value of a home fell to £263,788 (S$432,645), 4.4 per cent higher than a year ago. Annual housing price inflation slowed from as much as 14.3 per cent in March.
Homebuyers may have to pay an average of 5 per cent to take out a mortgage through 2028, the government’s Office for Budget Responsibility estimated. It is anticipating a 9 per cent drop in house prices over the next two years.
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Nationwide said that households were largely protected from rising borrowing costs for now, given that 85 per cent of UK mortgage holders were on fixed-rate mortgages.
For many of the 1.8 million UK households due to refinance in 2023, monthly payments are set to double, according to a Bloomberg Intelligence report.
Housing in the northern regions of the UK, Scotland and Wales has become less affordable against average household incomes than before the pandemic. Meanwhile, London – the least affordable locale both before and since Covid – has remained largely the same in terms of affordability.
High borrowing costs are translating into weaker demand. Bank of England data published earlier this week showed that mortgage approvals – an indicator for future borrowing – fell to their lowest levels since early in the pandemic.
Home sellers are already cutting asking prices, according to property search websites. Zoopla reported that one in 10 homes for sale have lowered prices by 5 per cent or more since September. Earlier this month, Rightmove said that sellers were slashing prices at the fastest rate since August. BLOOMBERG
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