British house prices witness largest drop since 2009 amid rising interest rates

According to mortgage lender Nationwide, British house prices experienced their largest drop since 2009 over the 12 months leading up to July. The housing market was affected by rising interest rates, resulting in a 3.8% decrease in average house prices compared to the previous year’s July figures, following a 3.5% decline in June.

Nationwide reported a 0.2% decrease in house prices compared to the previous month. The survey aligns with other indicators of the housing market, indicating sluggish activity due to increasing interest rates, resulting in mortgage rates surpassing 6% for both home buyers and existing mortgagors seeking to refinance.

Nationwide’s chief economist, Robert Gardner, stated that a typical first-time buyer with a 20% deposit would now see mortgage payments, at current rates, consume 43% of their take-home pay, up from 32% a year ago. According to Gardner, the challenging affordability situation is the reason for the recent sluggishness in the housing market.

Economists polled by Reuters anticipate the Bank of England to increase its Bank Rate to 5.25% from 5.0%, marking the highest borrowing cost since 2008. Despite a surprise increase in mortgage approvals in June, most economists believe the housing market will experience a downturn as the bulk of the BOE’s rate hikes since late 2021 are still impacting the economy.

Although the housing market is expected to continue being quiet in the short term, steady growth in nominal income and a slight decrease in house prices should gradually enhance housing affordability. This improvement is more likely to occur, especially if mortgage rates decrease once the Bank Rate reaches its highest point.

Next (Singapore property market cools as rental growth slows down in Q2)

British house prices witness largest drop since 2009 amid rising interest rates

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