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House prices plunge.

 

House prices registered the most significant decline in more than a dec­ade last month as higher interest rates and the broader cost of liv­ing crisis hit demand.

Prop­erty prices fell 1.1 per cent in Feb­ru­ary com­pared with the same month last year, the biggest drop since Novem­ber 2012 and a reverse of a 1.1 per cent increase in Janu­ary, accord­ing to a sur­vey by mort­gage pro­vider Nation­wide yes­ter­day. Eco­nom­ists polled by Reu­ters had expec­ted a fall of 0.9 per cent.

It was the first annual con­trac­tion since June 2020, when the hous­ing mar­ket was, in effect, shut dur­ing the Covid-19 lock­down.

Robert Gard­ner, Nation­wide’s chief eco­nom­ist, said the drop in prices reflec­ted low buyer con­fid­ence “as well as the cumu­lat­ive impact of the fin­an­cial pres­sures that have been weigh­ing on house­holds for some time”.

The weak state of the hous­ing mar­ket was under­lined by sep­ar­ate Bank of Eng­land data that showed mort­gage approvals fell to 39,600 in Janu­ary from 40,500 the pre­vi­ous month and the low­est since May 2020. Exclud­ing the onset of the Covid-19 pan­demic, this was the low­est level of approvals since Janu­ary 2009 in the depths of the reces­sion fol­low­ing the bank­ing crisis.

Sep­ar­ately, Per­sim­mon, one of the largest house­build­ers, warned that sales of new homes might fall as much as 40 per cent this year if high mort­gage rates and eco­nomic uncer­tainty con­tin­ued to depress buyer demand.

The aver­age interest rate on new mort­gages rose to 3.9 per cent in Janu­ary, the highest since 2010, BoE data showed, with the mar­kets anti­cip­at­ing fur­ther rises in interest rates as the cent­ral bank seeks to rein in infla­tion.

The aver­age house price fell to £257,406 in Feb­ru­ary from a peak of £273,751 in August but still £41,000 above the level of Janu­ary 2020, before the pan­demic hit.

House prices were down 0.5 per cent on Janu­ary, the sixth con­sec­ut­ive monthly decline since the August peak, mark­ing the most extended period of con­trac­tion since 2009.

Adjus­ted for infla­tion, house prices have fallen 11 per cent from their peak and are below their pre-pan­demic level, which com­pares with a fall in real terms of 19 per cent between 2007 and 2009, accord­ing to Andrew Wis­hart, senior prop­erty eco­nom­ist at Cap­ital Eco­nom­ics.

Luke Thompson, a mort­gage adviser at PAB Wealth Man­age­ment, said: “[Sellers] have had to become more accus­tomed to the fact that they may not achieve the full ask­ing price for their prop­erty as we aren’t see­ing mul­tiple people bid­ding for a prop­erty like we were at the end of 2021 and into 2022.”

Gab­ri­ella Dick­ens, senior UK eco­nom­ist at Pan­theon Mac­roe­co­nom­ics, said house prices would “con­tinue to decline over the next six months or so, res­ult­ing in a peak-to-trough fall of about 8 per cent”. However, she expec­ted house prices to return to expan­sion in 2024 if the BoE star­ted redu­cing interest rates and energy price pres­sures eased.

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