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Antony Antoniou – Luxury Property Expert

UK House Prices Experience Fastest Decline in 14 Years Amid Rising Borrowing Costs

UK House Prices Experience Fastest Decline in 14 Years Amid Rising Borrowing Costs


The UK housing market is experiencing a significant slowdown, with house prices falling at the fastest annual pace in 14 years. This comes as borrowing costs are expected to rise further in the wake of efforts to combat inflation. The Bank of England’s base rate, currently standing at 5%, is predicted to increase by 0.25 percentage points this week. In this blog post, we delve into the factors contributing to the decline in house prices and explore the potential implications for buyers, sellers, and the overall market.

**House Prices Witness Steepest Decline in Over a Decade**

According to Nationwide’s House Price Index, house prices have experienced a 3.8% year-on-year decline in July, the weakest growth rate since 2009. The average value of a home fell to £260,828, which is 4.5% lower than the peak reached in August. This significant drop in prices is being closely linked to the Bank of England’s efforts to curb inflation by potentially raising the base rate.

**Impending Interest Rate Hike**

Analysts and forecasters have predicted an imminent interest rate hike. The Bank of England base rate, which plays a crucial role in determining borrowing costs for mortgages and other loans, is expected to rise by 0.25 percentage points. According to a Reuters survey, 70% of 62 forecasters predict the rate to increase to 5.25%, while the remaining 30% anticipate a half-point rise.

**Affordability Remains a Concern for Prospective Buyers**

Nationwide’s chief economist, Robert Gardner, pointed out that housing affordability remains a significant concern for potential buyers. For a first-time buyer earning the average wage and seeking a property with a 20% deposit, mortgage payments would account for a substantial 43% of their take-home pay, assuming a 6% mortgage rate. This figure has surged from 32% just a year ago and is well above the long-term average of 29%. Additionally, deposit requirements pose a significant challenge, with a 10% deposit equivalent to 55% of gross annual average income.

**Mortgage Approvals Defy Soaring Interest Rates**

Surprisingly, mortgage approvals are at an eight-month high, despite the increase in interest rates. Data from the Bank of England indicates that around 54,700 home loans were approved in June, the highest level since October. The robust performance of the housing market in terms of mortgage approvals can be attributed to high levels of employment and wage growth.

**Can the Market Experience a “Soft Landing”?**

Amidst the ongoing market turbulence, there is still hope for a “soft landing” in house prices. Robert Gardner suggests that modestly lower house prices, coupled with healthy rates of nominal income growth, can eventually improve housing affordability, especially if mortgage rates stabilize once the Bank Rate peaks.

**Market Experts Predict a Turnaround**

Some market experts remain optimistic, noting that buyer demand remains strong despite stretched affordability. They believe that potential buyers are actively exploring properties where negotiation is possible, and securing a good price is still encouraging them to enter the market. James Forrester of estate agents Barrows and Forrester predicts a potential rise in house prices as interest rates begin to reduce, generating market momentum that could reverse the downward trends of recent months.


– UK house prices experiencing fastest annual decline in 14 years, falling by 3.8% in July.
– Average house value drops to £260,828, 4.5% lower than the peak in August.
– Borrowing costs expected to rise as Bank of England base rate may increase by 0.25 percentage points.
– Affordability remains a concern for buyers as mortgage payments account for 43% of take-home pay for first-time buyers.
– Mortgage approvals at an eight-month high despite soaring interest rates, thanks to high employment and wage growth.
– Experts predict a potential “soft landing” for house prices, driven by lower prices and healthy nominal income growth.
– Optimism remains among experts, with buyer demand undiminished and expectations of a potential rise in house prices.

The UK housing market is currently facing its most substantial annual price decline in 14 years, primarily due to the expected increase in borrowing costs. As the Bank of England prepares to raise the base rate, affordability concerns loom large for potential buyers. However, there remains hope for a “soft landing” in house prices, and experts believe that an uplift in the market may be just around the corner. With mortgage approvals defying expectations and buyer demand remaining strong, the market’s resilience continues to be tested, and only time will reveal the true direction of the UK property landscape.

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