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House prices in Britain fall at fastest pace since 2011

House prices in Britain fell in the year to June at their fastest pace since 2011, the country's largest mortgage lender said Friday. Kevin Dietsch/UPI
House prices in Britain fell in the year to June at their fastest pace since 2011, the country's largest mortgage lender said Friday. Kevin Dietsch/UPI | License Photo

July 7 (UPI) -- British house prices suffered their largest fall in more than a decade in the 12 months to June as soaring interest rates and a cost of living crisis continued to drag on the market, the country's largest mortgage lender said Friday.

The price of the average house fell by 2.6%, or $9,560, to $330,000, a sharp reversal from June 2022 when prices were growing at an annual pace of 12.5% and the largest decrease since 2011, Halifax Bank said in a news release.

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Prices were down across the country with the south worst hit, off 3%. Prices in the Midlands, however, ticked up by 1.5%. Newly built homes held up best with prices still rising, albeit at a dwindling pace, compared with existing homes which plunged 3.5% and apartments, down 3.1%.

With little price movement in recent months, the pace of decline was, in large part, a factor of the record-high prices seen last summer which received a boost from a temporary Stamp Duty cut, said Halifax.

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In September, the government cut the main 8% rate to 5% and raised the threshold at which purchases incur Stamp Duty to $319,000 and $541,000 for first-time buyers.

Average house prices actually rose by $5,100, or 1.5%, since January, rebounding from sharp falls at the end of last year in the wake of a mini-budget that sent borrowing costs rocketing, Halifax Mortgages Director Kim Kinnaird said.

Kinnard added that figures "suggest a degree of stability in the face of economic uncertainty" as mortgage applications, especially from first-time buyers, remained steady through June.

"That said the housing market remains sensitive to volatility in borrowing costs. Concerns about persistent inflation have led to a significant increase in the cost of funding. Coupled with base rate rising by another 50bp, this contributed to a big jump in typical mortgage rates over the last month," said Kinnaird.

"The resulting squeeze on affordability will inevitably act as a brake on demand, as buyers consider what they can realistically afford to offer. While there's always a lag effect when rates go up, many existing mortgage holders with variable deals or rolling off fixed rates will likely face an increase in the next year."

Financial data provider Moneyfacts said Thursday the cost of the average two-year fixed rate mortgage had jumped again to 6.52%, its highest level since October following a mini-budget on September 23 that severely impacted the British economy and sent government borrowing costs soaring.

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Last month, Nationwide, Britain's second-largest lender said house prices had fallen 3.4% in the 12 months to May, the fast pace of decline since July 2009.

The news comes as the latest His Majesty's Revenue & Customs data shows residential sales plummeted 27% year-on-year in May and mortgage approval figures from the Bank of England down by almost a quarter.

The Bank of England hiked its base interest rate by 50 basis points to 5% two weeks ago, its 13th consecutive increase, as it battles to control inflation running at 8.7% and core inflation on the rise.

Short-term government borrowing costs surged Thursday to a 25-year-high of 5.668% for two-year bonds and the highest for government bonds of any maturity since 2007, indicating markets believe further rate hikes are imminent.

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