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Antony Antoniou – Luxury Property Expert

UK Housing Market Suffers Biggest Blow to House Prices Among Major European Economies

UK Housing Market Suffers Biggest Blow to House Prices Among Major European Economies


In a concerning turn of events, the UK has experienced a significant decline in house prices, surpassing any other major European economy. With persistent inflation and rising mortgage rates dissuading potential buyers, the housing market has taken a considerable hit. This blog post explores the factors behind this downturn and sheds light on the implications for homeowners and the broader economy.

House Prices Plummet:

According to a report by Knight Frank, house prices in the UK fell by 3.1% on an annual basis in the first quarter of 2023. Comparatively, Germany experienced a 1% decline, while France witnessed a 2.7% rise during the same period. Italy’s prices grew by 1.1%, and Spain recorded an impressive growth of 3.1%. These statistics underscore the magnitude of the decline in the UK housing market.

Inflation and Mortgage Rates Take Their Toll:

One of the primary culprits behind the current housing market crisis is the rampant inflation plaguing the UK. Consumer price inflation currently stands at 8.7%, significantly higher than the Bank of England’s target of 2%. Moreover, core inflation, which excludes volatile costs like food and energy, reached 7.1% in May—the highest rate since 1992. These inflationary pressures have made potential buyers wary, leading to a decrease in demand for housing.

Simultaneously, mortgage rates have doubled, compounding the challenges faced by prospective homeowners. The average two-year fixed-rate mortgage now stands at 6.47%, compared to 3.25% a year ago, as reported by Moneyfacts. These soaring rates have made it increasingly difficult for individuals to afford homeownership, further exacerbating the downturn in the housing market.

Understanding the Market Dynamics:

Liam Bailey, global head of research at Knight Frank, highlights two crucial factors contributing to the UK’s weaker market conditions. Firstly, the higher prevalence of inflation in Britain compared to other countries in the Eurozone has significantly impacted house prices. Secondly, the structure of the UK mortgage market, with a greater proportion of shorter-term fixed-rate products, has made the market more vulnerable to rapid increases in the cost of debt.

Global House Price Slowdown:

It is worth noting that the UK is not alone in witnessing a housing market slowdown. Knight Frank’s report indicates that global house prices experienced their slowest annual growth since 2015 during the first quarter of 2023. Across 56 markets, house price growth declined to 3.6%, down from the 5.7% recorded in the previous quarter. This global trend reflects a broader economic shift impacting real estate markets worldwide.

Central London Hit Hardest:

A separate study reveals the severe impact of soaring borrowing costs on the Central London housing market. The average price of a family home in this region has plummeted by 7.2% since its peak in the previous summer. For homes worth under £2 million in prime Central London (PCL) postcodes, this decline equates to a £108,000 decrease in value. However, high-end properties valued at over £2 million experienced a smaller decline of only 0.8% year-on-year, demonstrating their resilience to interest rate fluctuations.


The UK housing market is grappling with a substantial blow to house prices, surpassing any other major European economy. Rampant inflation and rising mortgage rates have deterred buyers and led to a decrease in demand. These challenges have placed significant strain on the market and have wider implications for the overall economy. As the situation unfolds, homeowners and industry experts will closely monitor developments, hoping for a resurgence in the housing market in the near future.

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