UK house prices fall more after mortgage cost hike

House prices in the UK are falling more-than-expected at the fastest pace since the pandemic began after a rise in borrowing costs dampened demand, the Nationwide Building Society said.

The mortgage lender said house prices fell 1.4 percent in November. That was the second drop in as many months and the fastest drop since June 2020. Barring the pandemic, prices haven’t fallen that much since the global financial crisis more than a decade ago. Economists had expected a decline of 0.4 percent.

The cost of home loans has risen to over 6% in recent weeks from around 1% a year ago, on the back of a rise in the Bank of England’s benchmark interest rate and investor concerns about slowing growth and rising public debt. While borrower costs are past their peak, they are likely to remain well above the levels that buyers have enjoyed over the past decade.

“Interest rates on new mortgages remain high and the market has lost significant momentum,” Nationwide’s chief economist Robert Gardner said in a statement Thursday. “Housing affordability for prospective buyers and movers has become much tighter at a time when household finances are already under pressure from high inflation.”

The average home value fell to £263,788 ($319,120), up 4.4 percent from a year ago. The annual pace of house price inflation slowed from as much as 14.3 percent in March.

Homebuyers may have to pay an average of 5 percent to get a mortgage by 2028, the government’s Office for Budget Responsibility has estimated. Real estate prices are expected to fall by 9% over the next two years.

For now, Nationwide said households are largely protected from rising borrowing costs for now, with 85 per cent of UK mortgage holders holding fixed-rate mortgages.

According to a report by Bloomberg Intelligence, monthly payments for many of Britain’s 1.8 million households will double as a result of 2023 refinancing.

Housing in the northern regions of the UK, Scotland and Wales has become less affordable relative to average household income compared to before the pandemic. Meanwhile, London – the least affordable both pre- and post-Covid – has remained largely the same in terms of affordability for shoppers.

High borrowing costs lead to weaker demand. Bank of England data released earlier this week showed mortgage approvals – an indicator of future borrowing – have fallen to their lowest level since the pandemic began.

Home sellers are already lowering asking prices, according to property search websites. Zoopla reported that since September, one in 10 homes for sale has reduced prices by 5 percent or more. Earlier this month, Rightmove announced that sellers have slashed prices the most since August. UK house prices fall more after mortgage cost hike

Fry Electronics Team

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