UK Nationwide House Prices Decline Most Since 2009

UK house prices registered the biggest fall since mid-2009 as the rising interest rates stretched the housing affordability and damped demand.

The house price index posted an annual fall of 3.8 percent in July, faster than June’s 3.5 percent decrease, the Nationwide Building Society reported Tuesday.

The 3.8 percent decline was the sharpest since July 2009 and also matched economists’ expectations.

Month-on-month, house prices decreased 0.2 percent, in contrast to the 0.1 percent rise in June. The price of a typical home was 4.5 percent below the August 2022 peak.

Nationwide’s Chief Economist Robert Gardner said investors’ assessment about the future path of interest rates have been volatile. Expectations regarding the longer-term interest rates, which underpin mortgage pricing remain elevated.

Consequently, housing affordability remains stretched for those looking to buy a home with a mortgage, Gardner noted.

“Nevertheless, a relatively soft landing is still achievable, providing broader economic conditions evolve in line with our (and most other forecasters) expectations,” the economist said.

Nonetheless, Gardner said while activity is likely to remain subdued in the near-term, healthy rates of nominal income growth coupled with moderately lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks.

Data published by the Bank of England on Monday showed that mortgage approvals increased in June to the highest since October 2022 despite rising interest rates.

Further, net borrowing of mortgage debt by individuals rose to GBP 0.1 billion in June in contrast to net repayments of GBP 0.1 billion in May.

The BoE has lifted the benchmark interest rate over the last thirteen consecutive policy sessions due to runaway inflation. At 5.00 percent, the bank rate was the highest since 2008.

The central bank is widely expected to raise the bank rate by 25 basis points in the policy session on Thursday.

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