The UK housing market has been hit by a double whammy of rising interest rates and rail strikes, resulting in the sharpest annual decline in house prices since 2009, according to the latest data from Nationwide.
House prices fall by 5.3% from peak
The building society reported that house prices fell by 5.3% from their peak in August 2022 to this year, the fastest decline since the financial crisis caused the housing market to freeze up. The annual fall in prices was significantly faster than the 3.9% that economists had expected, according to a poll by Reuters and beat last month’s 3.8% fall. Prices dropped 0.8% month-on-month in August.
It means the average UK home – which costs about £259,000 – is about £14,600 cheaper. Even if the pace of the downturn in prices is unexpected, precisely nobody is surprised that prices are falling: inflation is eating into disposable income, and the Bank of England has raised the cost of borrowing dramatically in order to counter further inflationary pressures.
Rail strikes add to the woes of home buyers and sellers
As if the higher mortgage rates and lower affordability were not enough, home buyers and sellers also have to contend with the disruption caused by rail strikes across England. The Rail, Maritime and Transport (RMT) union has launched a series of walkouts over plans to close ticket offices and cut staff at stations.
The strikes have affected services on South Western Railway, Northern Rail, Merseyrail and Greater Anglia, causing delays, cancellations and overcrowding for commuters and travellers. The RMT said the action was necessary to defend jobs and safety, while the rail operators said they were modernising their services and offering more flexibility for customers.
The rail chaos has made it harder for people to view properties, move house or relocate for work, adding to the uncertainty and stress in the housing market. Some areas that rely heavily on rail links, such as London and the south-east, have seen bigger drops in house prices than others.
Is there any hope for a recovery?
Robert Gardner, Nationwide’s chief economist, said the decline in house prices was “not surprising” given the rise in borrowing costs and the decline in mortgage approvals, but he was still hopeful that “a relatively soft landing is still achievable, providing broader economic conditions evolve in line with our (and most other forecasters’) expectations.”
He said: “In particular, unemployment is expected to remain low (below 5%) and the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs, given the high proportion on fixed rates, and where affordability testing should ensure that those needing to refinance can afford the higher payments.”
Andrew Wishart, senior property economist at Capital Economics, a consultancy, thinks there is more of this to come: “The large monthly fall in house prices in August confirmed that the further leg down in house prices that we have been forecasting has begun to materialise. With mortgage rates likely to remain around current levels for another 12 months, we expect prices to continue to fall until mid-2024, taking the total drop in house prices since their August 2022 peak from 5.3% now to 10.5%.”
However, some analysts point out that there are still some positive factors supporting the housing market, such as healthy rates of nominal income growth, strong demand from first-time buyers and a limited supply of new homes. They also expect mortgage rates to moderate once the Bank of England reaches its peak level of interest rates.
