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UK house prices falling at fastest annual pace since 2009, says Nationwide UK mortgage lending hits record low in sign of housing market stress
(about 4 hours later)
Building society warns of ‘strengthening headwinds’ with high interest rates continuing for longer Bank of England data shows sharp dip in April as Nationwide says house prices falling at fastest annual rate since 2009
UK house prices fell at the fastest annual rate in nearly 14 years in May, as Nationwide building society warned that “headwinds” for the housing market were likely to increase in the coming months as high inflation fuels expectations of further interest rate rises. The UK’s housing market is showing growing signs of stress as mortgage lending collapsed to the lowest monthly level on record, and property valuations fell at the fastest annual rate in almost 14 years.
Prices decreased by 3.4% in the 12 months to May compared with 12 months earlier – representing the biggest drop seen since July 2009, when an annual fall of 6.2% was recorded. The steep drop follows tentative signs of improvement in April, when they showed a shallower slide of 2.7%. Figures from the Bank of England show borrowing of mortgage debt fell sharply in April, with consumers repaying £1.4bn more than was taken out in new lending on the month. The Bank said April’s figure, continuing a decline from net zero borrowing in March, was the lowest since records began in 1993, excluding the Covid pandemic.
House prices dipped 0.1% from a month earlier, after a more positive showing in April, when prices rose for the first time in seven months. Separate figures from the Nationwide building society showed that house prices fell in May at an annual rate of 3.4%, representing the sharpest fall since July 2009, when the British economy was grappling with the fallout from the 2008 financial crisis.
The figures reflect the central bank’s most aggressive round of interest rate increases in decades feeding through to the property market, as Threadneedle Street ramps up borrowing costs in response to stubbornly high inflation.
Martin Beck, chief economic advisor to the EY Item Club, said: “The numbers point to a housing market struggling in the face of pressure on household finances and higher mortgage rates. And rates could head up further, putting more pressure on housing market activity.”
The Bank said net mortgage approvals for house purchases fell from 51,500 in March to 48,700 in April, while remortgaging approvals increased slightly from 32,200 to 32,500. It said the effective interest rate – the rate paid by consumers – on newly drawn mortgages rose by 5 basis points to 4.46%.
Borrowing costs have risen dramatically in recent months after 12 straight interest rate increases from the central bank, taking its key base rate from 0.1% in December 2021 to the current level of 4.5%. With Britain suffering the stickiest rates of inflation in the G7 group of advanced economies, financial markets expect that the central bank could drive interest rates above 5.5% before the end of the year.
Against a backdrop of rising interest rates, banks and building societies have pulled almost 800 residential and buy-to-let mortgage deals in the past few days and warned homeowners looking for new mortgage deals to prepare for fixed rates above 5% in the coming weeks.
Highlighting the impact on the property market, the latest figures from Nationwide showed that house prices dipped by 0.1% in May from the level a month earlier. Although this was a more positive showing than in April, when prices rose for the first time in seven months, the building society warned that the housing market was facing “headwinds” that would increase in the coming months.
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Nationwide said house prices had largely remained flat over the past month after seasonal effects had been taken into account, taking the average price of a home in the UK to £260,736.Nationwide said house prices had largely remained flat over the past month after seasonal effects had been taken into account, taking the average price of a home in the UK to £260,736.
That remains 4% below the peak seen in August 2022, before former prime minister Liz Truss’s disastrous autumn mini-budget resulted in borrowing rates shooting up for prospective buyers and those remortgaging their homes.That remains 4% below the peak seen in August 2022, before former prime minister Liz Truss’s disastrous autumn mini-budget resulted in borrowing rates shooting up for prospective buyers and those remortgaging their homes.
Robert Gardner, the Nationwide chief economist, warned that “headwinds to the housing market look set to strengthen” over the coming months. Robert Gardner, the Nationwide chief economist, warned that interest rates would remain high for longer than previously expected.
Recent disappointing inflation figures have prompted economists to forecast that the Bank of England could raise the cost of borrowing to more than 5% by the end of the year, prompting banks and building societies to pull almost 800 residential and buy-to-let mortgage deals over the past few days. “If maintained, this is likely to exert renewed upward pressure on mortgage rates, which had been trending down after spiking in the wake of the mini-budget in September last year,” he said.
Homeowners looking for new mortgage deals have been warned to prepare for fixed-rate offers above 5% in the coming weeks. It comes as the cost of remortgaging has risen by 38% since the end of 2019, according to House of Commons library research commissioned by the Liberal Democrats. Sarah Olney, the party’s Treasury spokesperson, said: “Families are seeing their mortgage bills skyrocket as a result of the Conservative party’s mismanagement of the economy.
Interest rates “are also projected to remain higher for longer”, Gardner said. “The hard-working middle are already facing the highest tax burden in 70 years; now they are facing yet another mortgage hammer blow.”
“If maintained, this is likely to exert renewed upward pressure on mortgage rates, which had been trending down after spiking in the wake of the mini-budget in September last year.”
Recent figures from the Bank of England have showed some signs of recovery in activity in the housing market, although the number of mortgages approved for house purchases in March remained about 20% below pre-pandemic levels.
Marc von Grundherr, a director of the London-focused estate agent Benham and Reeves, said: “We’ve seen a promising start to the year so far in terms of buyer interest returning to the market but what we’re simply not seeing is this interest convert at the same rate.”
He added: “Buyer hesitation has been largely spurred by increasing interest rates and while the market is standing firm, it’s this more tentative approach to buying that is causing house prices to stutter.”
Matt Thompson, the head of sales at the estate agent Chestertons, described May as “a positive month for sellers”.
He added: “We witnessed an evident increase in buyer inquiries and actual offers being made.”
Despite the warnings about the impact of higher interest rates on the housing market, Nationwide does not believe that house prices are likely to fall significantly, even if there are fewer sales in the coming months.
“Healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once [the] bank rate peaks,” Gardner said.