House prices in the UK fell by 1.1 percent year-on-year in February, the biggest annual decline for more than a decade, according to new figures from the Nationwide Building Society.
It was the biggest annual house price fall since November 2012, and the first annual decline of UK house prices since June 2020, when the property market took a hit during the outbreak of the COVID-19 pandemic.
February also saw a further monthly price fall—the sixth in a row—which leaves prices 3.7 percent below their August 2022 peak.
Nationwide’s Chief Economist Robert Gardner said, “The recent run of weak house price data began with the financial market turbulence in response to the mini-budget at the end of September last year.”
The mortgage rates offered by lenders jumped following the “mini-budget” adopted by former Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng in September.
Their plan to fund a £45 billion package of tax cuts with government borrowing instead of spending cuts led to fears of unsustainable government debt levels. The ensuing turmoil in the financial markets caused the pound to fall steeply against the dollar and led to an increase in borrowing costs for both the government and British households.
Lingering Gloom
Gardner said it will be hard for the market to regain much momentum in the near term, with the labour market widely expected to weaken while mortgage rates remain above the lows seen in 2021.He said: “Indeed, despite the modest fall in house prices, 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.
“In addition, deposit requirements remain prohibitively high for many and saving for a deposit remains a struggle given the rising cost of living, especially for those in the private rented sector where rents have been rising strongly.”
The continued interest rate rises have further added to mortgage prices.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics said, “Looking ahead, we still expect house prices to fall over the coming months until they are about 8 percent below their peak.”
Housing Market ‘Far From Being on Its Knees’
But some economists have expressed optimism over the long-term health of the UK housing market.Nationwide’s Robert Gardener said conditions “should gradually improve” if inflation eases in the coming months as expected, alleviating pressure on household budgets.
“Solid gains in nominal incomes together with weak or declining house prices will also support housing affordability, especially if mortgage rates edge lower in the coming months,” he added.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Swap rates, which underpin the pricing of fixed-rate mortgages, and have been falling since the turmoil created by the mini-budget in September, have taken a turn and moved the other way in the past couple of weeks on the back of expectations of further base rate rises.
“Subsequently, several lenders who launched sub-4 percent five-year fixed-rate mortgages have since increased these, with mortgage rates likely to be up and down in coming weeks.”
Tom Bill, head of UK residential research at estate agent Knight Frank, said: “While most of the economy has moved on from the mini-budget, the hangover is longer for the UK housing market. It has led to a mismatch between the most recent anecdotal evidence and the latest data.
“While last month saw the steepest annual house price decline in more than 10 years, activity has been solid so far this year as buyers and sellers adapt to higher mortgage rates.
“We expect transaction levels to fall from the heights of the pandemic and prices to decline by 5 percent this year but the UK housing market is far from being on its knees.”
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