Sharp fall in UK house prices as rising borrowing costs hit the market

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House prices in the UK fell at the highest annual rate in 14 years in August, an index shows.

House prices fell 5.3 percent annually in August, bringing the average property value to £259,153, Nationwide Building Society said, marking the biggest annual percentage fall since July 2009.

Property values ​​fell 0.8 percent month-over-month in August 2023.

It came as separate data showed Britain’s plight. manufacturing The sector experienced its fastest contraction since the early days of the Covid-19 pandemic last month.

According to the influential S&P In the Global Manufacturing PMI/CIPS UK survey, the sector has now declined for 13 consecutive months.

The survey figure fell from 45.3 in July to 43.0 in August, it was revealed on Friday.

This means it has been 39 months since the survey scored this low for the manufacturing sector.

Excluding the pandemic lockdown in spring 2020, the survey has not performed this poorly since the 2009 financial crisis.

Nationwide said house prices are now 5.3%, or around £14,600, generally below their August 2022 peak.

The vast majority of existing borrowers should be able to withstand the impact of rising borrowing costs.

Robert Gardner, National Building Society

Robert Gardner, Nationwide’s chief economist, said: “August saw a further slowdown in the annual rate of house price growth to minus 5.3 per cent, compared to minus 3.8 per cent in July, the lowest rate since July 2009.”

He said the slowdown “is not surprising, given the scale of the rise in borrowing costs in recent months, which has resulted in property market activity well below pre-retirement levels.” pandemic.

“For example, mortgage approvals have been approximately 20% below the 2019 average in recent months and mortgage application data suggests this weakness has continued more recently.

Mr Gardner said a “relatively soft landing is still achievable”, provided broader economic conditions develop in line with expectations.

He added: “In particular, unemployment is expected to remain low and the vast majority of existing borrowers should be able to withstand the impact of rising borrowing costs given the high proportion of fixed rates, and where Affordability tests should ensure that those who need to refinance can afford higher payments.

“While activity is likely to remain subdued in the short term, healthy growth rates in nominal income, along with slightly lower house prices, should help improve housing affordability over time, particularly if mortgage rates moderate once (the Bank of England base rate). peaks.”

Mr Gardner added that cash property purchases have been “remarkably resilient, while purchases involving a mortgage have slowed much more sharply”.

The number of people moving with a mortgage in the first half of 2023 was a third lower than 2019 levels, while the number of first-time buyers was around a quarter lower, it said.

Rental purchases involving a mortgage were down almost 30 percent. In contrast, spot purchases increased by 2 percent, he said.

“The relative weakness in mortgage activity reflects increasing affordability pressures resulting from the sharp rise in mortgage rates since last fall, which would not have affected cash buyers,” he said.

“Indeed, a first-time buyer earning the average wage and purchasing a typical first-time buyer property with a 20 per cent deposit would now see their monthly mortgage payment eat up more than 40 per cent of their take-home salary (with a mortgage). rate of 6 percent) – well above the long-term average of (approximately) 29 percent.

There are signs that buyers are shifting to smaller, cheaper properties, he added.

We expect pressure on pricing and trading volumes to continue this year and next year.

Chris Druce, Knight Frank

Chris Druce, senior research analyst at estate agent Knight Frank, said: “The Bank of England’s rate-setting decision later this month, and the messaging around it, will be a key moment for the British real estate market.

“If, as we believe, we are near the top of the rate hike cycle, we can expect buyer confidence to improve in the second half of this year, after a difficult period which saw the power people’s purchasing activity decreases and activity slows down.

“Certainity around pricing will allow buyers to plan more effectively, although affordability will remain limited and we expect pressure on pricing and transaction volumes to continue this year and next.

“However, demand is expected to prove more resilient than expected given the dampening effect of strong wage growth, lockdown-related savings, the availability of longer mortgage terms, lender flexibility and of the popularity of fixed rate agreements in recent years.”

Tomer Aboody, director of property lender MT Finance, said: “The fall in transaction numbers, combined with market negativity, is leading to a slowdown in property prices, a trend that has been evident for several months.

“Continuously rising interest rates make affordability difficult for buyers trying to move, with many having no choice but to wait for rates to stabilize.

Christian Duncan, managing director of Manchester Mortgage Centre, said: “Since the mini-budget and with all the recent rate increases, first-time buyers have changed their mindset and are no longer looking to borrow as much as possible, but present themselves with a maximum expenditure per month and seek to find a property that fits their budget.

David Stirling, independent financial adviser at Belfast-based Mint Mortgage & Protection, said: “Many borrowers are considering extending the term of their mortgage to try to help them manage their monthly mortgage payments. With this in mind, HSBC extending the duration of mortgage loans to 40 years constitutes a very welcome change in criteria.

Simon Gerrard, managing director of London-based estate agents Martyn Gerrard, said: “August is generally a slower month as people prioritize their summer holidays over house hunting. »

Nicky Stevenson, managing director of estate agent group Fine & Country, said: “As we exit summer, demand is expected to increase again and many sellers are looking to start marketing their homes in September. »

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