March 1, 2023: U.K. house prices saw their sharpest annual decline since 2012 in February, based on Nationwide.
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LONDON — U.K. house prices fell by 1.1% annually in February, their first annual decline since June 2020 and the sharpest contraction since November 2012, based on a widely-watched report from constructing society Nationwide.
February saw a 0.5% month-on-month fall, with prices now 3.7% lower than their August 2022 peak as higher mortgage rates and a cost-of-living crisis continued to discourage homebuying.
“The recent run of weak house price data began with the financial market turbulence in response to the mini-Budget at the tip of September last yr,” said Nationwide Chief Economist Robert Gardner in a press release on Wednesday.
“While financial market conditions normalised a while ago, housing market activity has remained subdued.”
Mortgage rates soared in September 2022 after former Prime Minister Liz Truss’ disastrous tax-cutting “mini-budget” prompted a historic sell-off within the U.K. government bond market, eventually resulting in a Bank of England intervention and Truss’ resignation after 44 days in office.
February’s fall likely reflects the lingering damage to confidence and squeeze on household incomes, with inflation continuing to outpace wage growth and mortgage rates remaining substantially higher than their 2021 lows, Gardner explained.
“It can be hard for the market to regain much momentum within the near term since economic headwinds look set to stay relatively strong, with the labour market widely expected to weaken because the economy shrinks within the quarters ahead, 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 prospective first-time buyer earning the typical income, Nationwide noted.
Meanwhile, deposit requirements remain “prohibitively high” within the context of the rising cost of living and a steep increase in private renting costs.
“Nevertheless, conditions should steadily improve if inflation moderates in the approaching months as expected, easing pressure on household budgets,” Gardner said.
“Solid gains in nominal incomes along with weak or declining house prices can even support housing affordability, especially if mortgage rates edge lower in the approaching month.”
Analysts have forecast house price declines for the yr of 10% to as much as 30% in a single scenario.
Shares of U.K. housebuilders fell across the board on Wednesday morning, led by a 9% plunge for Persimmon.
