UK house prices fall again after mortgage rates creep higher

London: UK house prices fell at the sharpest pace in eight months after the cost of mortgages crept higher, one of the country’s biggest lenders said.

The Nationwide Building Society estimated the average price of a house fell 0.4 per cent in April after a 0.2 per cent decline the month before. Economists had expected a 0.1 per cent monthly increase.

The result followed a scaling back of bets on Bank of England interest rate cuts this year, which pushed up the cost of home loans in markets. That has strained the ability of people to afford to buy a property, with prices remaining near records despite recent declines.

“The slowdown likely reflects ongoing affordability pressures, with longer-term interest rates rising in recent months, reversing the steep fall seen around the turn of the year,” Robert Gardner, chief economist at Nationwide, said in a report Wednesday.

The average cost of a home is now £261,962 (S$446,456), which is about 4 per cent below the peak in the summer of 2022. Prices have stagnated over the past year, up just 0.6 per cent. That is much less than the 1.2 per cent gain economists had expected.

Nationwide said research it did with Censuswide found that almost half of the prospective first-time buyers looking to secure a home in the next five years have delayed their plans.

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“Among this group, the most commonly cited reason for delaying their purchase is that house prices are too high (53 per cent), but it is also notable that 41 per cent said that higher mortgage costs were preventing them from buying,” Nationwide said.

Another 55 per cent of people said they would be willing to buy in a cheaper area of the country or where they could get a bigger property – half were willing to move more than 30 miles away.

The UK housing market has defied expectations of a sharp downturn last year, yet its recovery over the last few months has remained weak. Prospective buyers are still finding it hard to come up with the money for a deposit, while the benchmark lending rate is at a 16-year high.

BOE officials warning of lingering price pressures have pushed up two and five-year swap rates, used to set the bulk of mortgage products. That suggests households would still be spending a higher share of their incomes on mortgage payments than they did in the decade to 2007, according to Bloomberg Economics.

Nationwide’s figures contrast with more upbeat data from the BOE showing mortgage approvals rose to the highest in 18 months in March. Banks and building societies authorised 61,325 home loans, up from 60,497 in February and the most since September 2022.

Separate data released Tuesday from HM Revenue & Customs, the UK tax authority, showed property transactions climbing for a third month to 84,200 in March.

However, a recent resurgence in borrowing costs has raised questions over whether the recovery can continue. Natwest, Santander and Nationwide all have increased mortgage rates this month in response to rising swap rates, which are used to set the bulk of mortgage products.

For the one million households due to refinance fixed-rate mortgages by the end of the year, new loans will be pricier than the ones they are currently on. BLOOMBERG