1 of 2 | Britain's housing market has been weighed on by 10 interest rate rises by the Bank of England, driving up mortgage rates. That has made it difficult for people to afford prices that rose dramatically since the start of the COVID-19 pandemic in 2020, peaking in August. File photo by Andy Rain/EPA-EFE
March 1 (UPI) -- British house prices suffered their biggest fall in more than a decade with higher interest rates and inflation pushing them down by 1.1% in the year to February, the country's second-largest lender said Wednesday.
February also saw the sixth-consecutive monthly fall in house prices -- down 0.5% from January -- meaning prices are now 3.7% below their August peak, according to Nationwide Building Society's February Housing Price Index report.
The fall means the average cost of a home in Britain is now $311,665, down from $310,590 in January amid a cost-of-living crisis sparked by the war in Ukraine and a weakening economy.
The IMF and Bank of England both forecast Britain will go into recession this year. The IMF's GDP forecast is -0.6% while the BoE sees the economy shrinking by 0.7%.
"The recent run of weak house price data began with the financial market turbulence in response to the mini-Budget at the end of September. While financial market conditions normalized some time ago, housing market activity has remained subdued," said Nationwide Chief Economist Robert Gardner.
"This likely reflects the lingering impact on confidence as well as the cumulative impact of the financial pressures that have been weighing on households for some time.
"Indeed, inflation has continued to outpace wage growth and mortgage rates remain significantly higher than the lows recorded in 2021," Gardner said.
"Even though consumer sentiment has improved in recent months, it is still languishing at levels prevailing during the depths of the financial crisis."
Gardner said strong economic headwinds meant the market would struggle to regain momentum in the near term with the labor market widely expected to weaken as the economy shrinks in the quarters ahead, while mortgage rates remain well above the lows prevailing in 2021.
With lenders requiring prohibitively high deposits and mortgage payments as a share of take-home pay remaining well over the long-term average, lower prices would be of little help to people seeking to buy their first home, Gardner added.
BoE has hiked interest rates 10 times since December 2021 in an effort to tame red-hot inflation running at a near 40-year high of 10.1%.
The 4% Bank Rate has fed through to mortgage interest rates pushing them above 6.5%, their highest level in 15 years.
However, Gardner forecast that the situation would gradually improve if inflation moderated in the coming months as expected, easing pressure on household budgets.
Rising wages together with weak or declining house prices could make houses more affordable, especially if mortgage rates edge lower in the coming months, he said.
The picture painted by Nationwide is the mirror image of the U.S. housing market where prices are still rising, albeit at a slowing rate.
The latest data out yesterday suggest that with a weakening economy and higher interest rates, six-straight months of declines in average price increases are likely to continue.
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index showed a 5.8% annual gain in home prices for December, down from the 7.6% increase through the 12-month period ending in November.
Among the cities in a 20-city composite, southern U.S. metropolitan areas saw the largest increases in the nation, with home prices in Miami up 15.9% from December 2021.
But all 20 cities in the composite reported lower prices over the 12-month period ending in December 2022 than during the year to November.