- February saw a 0.5% drop month-on-month, with prices now 3.7% below their August 2022 peak, rising mortgage rates and the cost of living crisis continuing to discourage home buying.
- “The recent string of weak house price data began with the financial market turmoil in response to the mini-budget in late September last year,” Nationwide chief economist Robert Gardner said.
March 1, 2023: UK property prices suffered their biggest annual fall since 2012 in February, according to Nationwide.
Christopher Furlong | Getty Images News | Getty Images
LONDON — UK house prices fell 1.1% a year in February, their first annual decline since June 2020 and the biggest contraction since November 2012, according to a widely watched report from construction firm Nationwide.
February saw a 0.5% drop month-on-month, with prices now 3.7% below their August 2022 peak, rising mortgage rates and the cost of living crisis continuing to discourage home buying.
“The recent string of weak house price data began with the turbulence in financial markets in response to the mini-budget at the end of September last year,” Nationwide chief economist Robert Gardner said on Wednesday. , in a press release.
“While financial market conditions normalized some time ago, activity in the housing market has remained subdued.”
Mortgage rates soared in September 2022 after former prime minister Liz Truss’ disastrous tax cut ‘mini budget’ caused a historic sell-off in the UK government bond market, ultimately leading to an intervention by the Bank of England and the resignation of Truss after 44 days in office.
February’s plunge likely reflects continued damage to confidence and the squeeze on household incomes, with inflation continuing to outpace wage growth and mortgage rates remaining significantly higher than their 2021 lows, Gardner said.
“It will be difficult for the market to regain near-term momentum as economic headwinds are expected to remain relatively strong, with the labor market widely expected to weaken as the economy contracts over the coming quarters. , while mortgage rates remain well above the lows prevailing in 2021,” he said.
Mortgage payments on a typical home remain well above the long-term average as a share of take-home pay for a potential first-time buyer earning the average income, Nationwide noted.
At the same time, deposit requirements remain “at a prohibitive level” against the backdrop of the rising cost of living and a sharp increase in private rental costs.
“However, conditions should gradually improve if inflation moderates in the coming months as expected, easing pressure on household budgets,” Gardner said.
“Solid nominal income gains as well as weak or falling house prices will also support housing affordability, particularly if mortgage rates decline slightly over the coming month.”
Analysts have forecast house price declines for the year of 10% to 30% in one scenario.
Shares of British homebuilders fell broadly on Wednesday morning, led by a 9% drop for Persimmon.