Britain’s annual house prices fall most since 2009, Nationwide says
THE decline in UK house prices accelerated in June, according to Nationwide Building Society, likely fuelling concerns about the impact of soaring mortgage rates on borrowers during a cost-of-living crunch.
The pace of declines stepped up to 3.5 per cent, the highest since 2009, from 3.4 per cent a month earlier, the lender said in its monthly house price index. That takes the price of an average home to £262,239 (S$449,408).
The downward pull will worry Prime Minister Rishi Sunak as he gears up for a general election expected in 2024. His Conservatives trail the opposition Labour Party by double-digits in opinion polls, and economists are increasingly fear that continued rate hikes will push the UK into a recession this year.
Borrowers are facing a steep rise in mortgage costs after inflation readings repeatedly came in higher than market forecasts, prompting investors to bet the Bank of England will now be forced to rate its key interest rate above 6 per cent.
Just last week the BOE pushed ahead with a 50 basis-point hike, taking its base rate to 5 per cent, a day after the consumer price index was revealed to have remained at 8.7 per cent in May. This is still more than four times its 2 per cent target.
Much of June’s housing market activity will have come before the latest rate hike. On a monthly basis, house prices unexpectedly rose 0.1 per cent after a 0.1 per cent fall in May. A survey of economists by Bloomberg predicted a slide of 0.2 per cent.
A NEWSLETTER FOR YOU
Tuesday, 12 pm
Property Insights
Get an exclusive analysis of real estate and property news in Singapore and beyond.
While June’s reading was better than expected, the mortgage market turmoil fuelled by the BOE’s moves is likely to mean there is worse to come, according to Nationwide chief economist Robert Gardner.
“The sharp increase in borrowing costs is likely to exert a significant drag on housing market activity in the near term,” he said. “Longer-term borrowing costs have risen to levels similar to those prevailing in the wake of the mini-Budget last year, but this has yet to have the same negative impact on sentiment.”
Mortgage rates shot up in the aftermath of Liz Truss’s unfunded spending plans last September, as markets bet that the government would have to ramp up its borrowing. While that specific impact has since subsided, it has been balanced out by the BOE’s rate hikes. Still, Labour repeatedly accuses Sunak’s government of imposing a “Tory mortgage penalty” on borrowers.
Figures from the BOE on Thursday showed households collectively paid back almost £100 million more in mortgage debt than they borrowed in May, making net repayments for a second month in a row. This was the first back-to-back reduction in secured lending in records going back to 1993.
And while mortgage approvals – an indicator of future borrowing – rose slightly to 50,524, they remained well below pre-pandemic levels, indicating that rising rates are piling pressure on would-be buyers. The effective interest rate on new mortgages rose 10 basis points to 4.56 per cent in May, the BOE said.
Speaking at a media round-table event on Thursday, Blackrock managing director Alex Brazier – the BOE’s former executive director of financial stability – said he expected getting inflation down to 2 per cent would “in all likelihood” necessitate a recession.
While the BOE has been hiking its base rate at back-to-back monetary policy meetings since December 2021, a large chunk of this tightening is yet to work its way through to households due to the higher number who are now on fixed-rate mortgages.
“Around 400,000 borrowers are due to refinance each quarter in the years ahead as their deals come to an end,” Gardner at Nationwide said. That’s equivalent to about 20 per cent of the fixed-rate mortgage stock refinancing by the end of 2023, and 40 per cent by the end of 2024.
Still Gardner said that increased stress tests in recent years may mean borrowers are able to cope, without necessarily plunging the economy into a recession.
“Incomes have been rising at a solid pace in recent years,” he said. “Lenders will also work with borrowers to provide assistance wherever possible.” BLOOMBERG
Share with us your feedback on BT's products and services
