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Antony Antoniou – Luxury Property Expert

The bottom is falling from the housing market

The bottom is falling from the housing market

The UK Housing Market Faces Its Biggest Annual Price Drop in 14 Years – Is There Hope on the Horizon?

The British housing market is in turmoil as house prices take a nosedive, plummeting by nearly £15,000 in what is considered the most significant annual slump in 14 years. Property values have tumbled by 5.3 percent from their peak in August of the previous year, painting a grim picture for homeowners and prospective buyers alike. The real estate market, once a pillar of the economy, is now grappling with its weakest state since the 2009 recession, according to recent figures. Economists are sounding the alarm, warning that this may only be the beginning of a more prolonged and “significant” decline.

A Drastic Decline in Home Values

In the past 12 months, the average home in the UK has lost a staggering £14,600 of its value, and the reasons behind this decline are multifaceted. One primary factor contributing to this decline is the sharp increase in mortgage rates. The average two-year mortgage rate stood at a hefty 6.7 percent at the end of August, a far cry from the record-low central interest rate of 0.1 percent less than two years ago. This sudden spike in borrowing costs has taken a toll on homebuyers and investors, causing them to rethink their financial strategies.

Cooling Down of the Housing Market

The housing market’s cooling effect can also be attributed to a reduction in activity levels. Robert Gardner, Nationwide’s chief economist, noted that housing market activity has fallen to levels “well below” what was seen before the pandemic. Mortgage approvals have dropped by approximately 20 percent below the 2019 average in recent months, with data suggesting this trend has been sustained.

Predictions for the Future

Economists and experts have been quick to offer their predictions regarding the market’s future trajectory. Some anticipate that house prices could continue to fall, potentially plummeting by as much as 10 percent. Andrew Wishart, senior property economist at Capital Economics, sees the recent 0.8 percent month-on-month drop in house prices in August as a clear sign of the impact of rising mortgage rates on the housing market. He predicts a “significant further drop” in house prices as mortgage rates are expected to remain between 5.5 percent and 6 percent for the next year.

Hope on the Horizon

Despite the gloomy outlook, there may be some hope for the beleaguered housing market. Robert Gardner of Nationwide suggests that while activity may remain subdued in the short term, nominal income growth and gradually declining house prices could help improve housing affordability over time, especially if mortgage rates stabilize once the Bank Rate peaks.

Tomer Aboody, of property lender MT Finance, calls on the Bank of England to reconsider further interest rate hikes, giving the market “some breathing space to adjust.” He highlights the dwindling number of transactions and the general pessimism in the market, which are driving the softening of property prices. Many potential buyers are left with little choice but to wait for more favorable conditions.

In conclusion, the UK housing market is currently facing its most significant price drop in over a decade. While the situation appears dire, experts remain cautiously optimistic that with time and some necessary adjustments, the market may stabilize. For now, homeowners and potential buyers must navigate these uncertain waters with prudence and patience.

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