In March, UK house prices experienced their steepest decline since 2009, with an annual fall of 3.1%, surpassing the 2.2% drop forecasted by economists. Data from Nationwide, a mortgage provider, revealed the extent of the negative impact of high inflation and increasing borrowing costs on the property market.
House prices in March fell more than expected, with a 3.1% annual decline compared to the 1.1% decrease in the previous month. This marked the most significant year-on-year drop since July 2009. Property prices also experienced a larger-than-anticipated fall of 0.8% between February and March, continuing the uninterrupted decline seen since last summer. The average house price now stands at £257,000, down from a peak of approximately £274,000 in August.
Robert Gardner, Nationwide’s chief economist, expressed his belief that the market would struggle to regain momentum in the near term due to weak consumer confidence and household budgets remaining under pressure from high inflation. He also noted that housing affordability continued to be strained, with mortgage rates significantly higher than those seen in the previous year.
The Bank of England’s decision to raise interest rates from a historic low of 0.1% at the end of 2021 to the current 4.25% has contributed to increased borrowing costs. This move aims to bring inflation down to the target of 2%. This week, data from the Bank of England showed that average rates on new mortgages rose to 4.2%, the highest rate since 2008.
Gardner attributed the “turning point” in the UK housing market last year to financial market turbulence following the “mini” Budget. Although mortgage rates have since stabilised, activity in the market remains subdued.
Gabriella Dickens, an economist at Pantheon Macroeconomics, stated that the downturn in the housing market is now in full swing. She anticipates that house prices will continue to fall in the coming months, reaching about 8% below their peak. This decline is expected as interest rates are predicted to remain high throughout the year, and weak demand persists, as indicated by the latest RICS report.
