According to Nationwide, UK house prices have fallen at the fastest rate in two and a half years in the past month, driven by the fallout from Liz Truss’s miserable mini-budget.
Average home prices fell 1.4 per cent to 263,788 units in November, according to the Builders Association Home Price Index, accelerating the slowdown in prices, which fell 0.9 per cent in October. This is the third consecutive month of decline and the largest drop since June 2020.
Annual home price growth slowed significantly to 4.4% in November from 7.2% a month ago.
UK house price graph
The November slowdown showed the continued impact of the September mini-budget, which took the market by surprise and increased home loan costs. While government lending rates have eased since then, average five-year fixed-rate mortgage deals are still hovering around 5%, and the resulting high costs continue to squeeze demand.
Nationwides chief economist Robert Gardner said financial market conditions were stabilizing but new mortgage rates were still rising and the market had lost significant momentum. At a time when household finances are already strained by high inflation, the ability to afford homes for prospective buyers and movers is much higher.
Nationwide said more people will need to borrow more money to buy a home as it is over priced in the market.
Inflation hit 11.1 per cent in October, the highest level since 1981, as bills for energy and food soared, reducing the spending power of British households, including prospective homebuyers.
The slowdown in house prices indicates a cooling of the market compared to the strong growth observed during the pandemic as people race for space in search of larger homes and outside space following lockdowns across the UK.
Nationwide warned on Thursday that the housing market is unlikely to recover from these losses anytime soon as policymakers on Threadneedle Street raise interest rates further to fight rising prices.
Gardner said the market is likely to remain depressed next quarter. Inflation is expected to remain high for the foreseeable future. [the] Bank rates are likely to rise further as the Bank of England works to ensure slowing economic demand to ease domestic price pressures.
The outlook is uncertain and will depend a lot on how the broader economy performs, but a relatively soft landing is still possible.
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But Gardner said given that about 85% of mortgages are fixed-term home loans, homeowners are still in a relatively strong position despite the looming recession and higher interest rate prospects.
Experts at EY Item Club said significant savings accumulated by many households during the pandemic would help cushion the blow of higher mortgage rates in the coming months, but agreed that further declines in home prices are likely. .
Independent forecasters have argued that markets are overestimating the degree to which the central bank will raise interest rates in the future, but they still expect average home prices to decline by 10% over the next 18 months.
Bank of England’s chief economic adviser, Martin Beck, said market expectations of a peak in Bank of England (BoE) rates were still too hawkish. What the EY Item Club thinks [the] Bank rates are unlikely to rise above 4% early next year, compared to investors’ current expectations of 5%.
Additionally, the excess savings accumulated by households after 2020 will provide a buffer against rising mortgage rates. Therefore, the EY Item Club expects average property prices to decline further, but the decline will be limited to around 10%.
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