December 12, 2022

Chart of the Week: UK house prices fall

by Fathom Consulting.

The fundamentals for the UK housing market do not look encouraging, with economic activity shrinking, real incomes falling and mortgages rates sharply higher than at the start of the year. Recent data suggest the market correction has well and truly begun: according to Nationwide’s average house price index, prices fell 3.6% between August and November, the largest quarterly decline since the Global Financial Crisis. Additionally, last week’s RICS survey showed a net balance of 25% of respondents recording price falls over the past three months, considerably more than expected by a Reuters poll.  The market appears particularly weak in the South-East and South-West, with the largest share of respondents to the RICS survey reporting price falls and reductions in new buyer enquiries in these regions. That should not come as any surprise, given that borrowing costs have skyrocketed this year,  and these are the areas where affordability is most stretched. Price-to-earnings ratios are higher than the national average, and residents spend 6 per cent more of their net income on mortgage payments. At 5.6% in October, five-year 75% loan-to-value mortgages were 4.3 percentage points higher than a year earlier.  According to the Bank of England’s Credit Conditions Survey, banks are tightening lending conditions, with the respondents identifying the near-term macro outlook and expectations for house prices as their rationale for doing so.

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