UK Housing Market: In August, UK house prices experienced their most substantial year-on-year decline in 14 years, primarily due to the increasing borrowing costs, according to data released by Nationwide on Friday.
The year-on-year decline in house prices reached 5.3%, following a 3.8% drop in July, which was significantly more pronounced than the expected 3.9% decrease. On a monthly basis, house prices saw a 0.8% decrease in August, compared to a 0.3% dip in the previous month. Analysts had anticipated a more modest 0.4% decline.
The Impact of Rising Borrowing Costs
One of the key factors contributing to this downturn is the significant rise in borrowing costs. The average home price stood at £259,153, a decline from the previous figure of £260,828. Robert Gardner, the chief economist at Nationwide, commented, “The softening is not surprising, given the extent of the rise in borrowing costs in recent months, which has resulted in activity in the housing market running well below pre-pandemic levels.
Mortgage Market Dampening
For example, mortgage approvals have been around 20% below the 2019 average in recent months, and mortgage application data suggests the weakness has been maintained more recently. Nevertheless, a relatively soft landing is still achievable, providing broader economic conditions evolve in line with our (and most other forecasters’) expectations.”
Read Also: UK house price predictions for next 5 years
Expert Opinion
Andrew Wishart, a senior property economist at Capital Economics, stated, “With mortgage rates set to remain between 5.5% and 6.0% for the next 12 months, and second-hand supply on the market becoming less tight, we think the August data marks the start of a significant further drop in house prices. Indeed, the RICS survey, which is the best leading indicator of house prices, is consistent with house prices falling by a similar amount month-on-month for the next five months at least.”
In conclusion, the UK housing market is currently facing challenges due to the substantial increase in borrowing costs, resulting in a notable year-on-year decline in house prices. Experts believe that this trend is likely to continue in the coming months, with further drops expected. However, a relatively soft landing is still possible if broader economic conditions align with expectations.
Read Also: Top Dividend Stocks to Buy in September