UK House Prices Drop for First Time in Decade
House prices in the UK fell 1% YoY in May 2022, which represents the first annual contraction seen in over 10 years. According to Halifax, this decline has been fueled by the hike in mortgage rates, which has put prospective buyers off. Halifax’s Director, Kim Kinnaird, said the drop in the housing market reflected “the impact of higher interest rates” and expected further rate hikes in the coming months. Halifax also reported that average property prices have fallen by around £3,000 in the past year and around £7,500 since their peak in August. Despite this fall, prices were still up £5,000 from the end of last year and around £25,000 higher than two years ago. The pandemic was the primary reason for this boom.
Nationwide, another major mortgage lender in the UK, also highlighted this trend, saying that house prices fell at an annual rate of 3.4% in May, the largest drop since 2009.
The graph released by Halifax depicted the percentage of annual changes in the housing market, indicating a noticeable dip in the current year.
What’s Causing the UK Housing Market Decline?
One of the primary reasons for the current slump in the UK housing market is the rise in mortgage rates. Higher interest rates have deterred prospective buyers from investing in property since higher borrowing costs mean re-evaluating one’s financial capabilities.
Before the pandemic, interest rates were already low because of the Bank of England’s Monetary Policy Committee’s action. After the pandemic, however, interest rates dipped even further to provide some relief to the UK citizens. This low-interest rate policy was put in motion to spur economic growth.
However, the Bank of England, along with all major central banks around the world, started to raise interest rates as the global economy improved. This increase in the mortgage rates made it tough for UK buyers to get into the housing market, and as a result, the housing market slumped towards the end of 2021.
Another factor that might have played a role in the decline of the UK real estate market is the supply chain disruptions that continue to impact the construction industry. A shortage of building materials and labor has contributed to a slow pace of construction, resulting in fewer new properties in the market and less investment opportunities for buyers.
Summary:
The UK’s housing market has seen a YoY contraction for the first time in over a decade, down 1% YoY in May, according to Halifax. This decline has been fueled by higher mortgage rates, and further hikes are expected in the coming months. The average property price has fallen £3k in the past year and £7.5k since the peak in August. However, prices are still up £5k from the end of last year, with the pandemic being the primary reason for this. Nationwide reported the largest annual drop in UK house prices since 2009 in May, with a decline of 3.4%.
What’s Causing the UK Housing Market Decline?
One of the primary reasons for the current slump in the UK housing market is the rise in mortgage rates. Before the pandemic, interest rates were already low, but they dipped even further after the pandemic. However, the Bank of England, along with all major central banks, raised interest rates as the global economy improved.
Another factor that might have played a role in the decline of the UK real estate market is the supply chain disruptions that continue to impact the construction industry. A shortage of building materials and labor has contributed to a slow pace of construction, resulting in fewer new properties in the market and less investment opportunities for buyers.
The Future of UK Housing Market:
The future of the UK’s housing market may depend on the changing economic landscape in the coming years.
If interest rates continue to rise, first-time buyers and current homeowners could have a harder time repaying their mortgages. This may lead to an increase in the number of distressed properties available in the market.
There is a possibility of a gradual drop in house prices in the months to come due to the impending rate hikes. However, this drop could also lead to an opportunity for first-time buyers to invest in property.
Additionally, the pandemic may have caused a long-term shift in work practices and lifestyle preferences that could alter the demands for housing in the coming years. More people are working from home, resulting in more people needing extra rooms, such as a home office.
The Bottom Line:
The UK housing market has seen a rapid decline in the past year due to the rise in mortgage rates and supply chain disruptions. The future of the market depends on rate hikes, distressed-property opportunities, and the shift in work practices, making it a market that demands attention.
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UK house prices saw their first annual contraction in more than a decade in May as prospective buyers were hit by higher mortgage rates, according to mortgage provider Halifax.
Property prices they were down 1% last month compared to May 2022, the first annual decline since December 2012.
Kim Kinnaird, director of Halifax Mortgages, said the price drop reflected “the impact of higher interest rates.” He added that markets expect further rate hikes, which “will inevitably impact sentiment in the housing market.”
Halifax reported that average property prices have now fallen by around £3,000 over the past 12 months and are down by around £7,500 since their peak in August. However, prices were still £5,000 up from the end of last year and £25,000 above their level two years ago, reflecting the pandemic boom.
Earlier this month, the mortgage lender Nationwide reported that UK house prices fell at an annual rate of 3.4% in May, the biggest drop since 2009.
https://www.ft.com/content/5d2b9983-2f4c-4a1b-a781-5ca3ceed06f1
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