UK House Prices Experience Steepest Drop Since 2009 Amidst Rising Interest Rates
The UK housing market is witnessing a significant decline as demand for property dips due to increasing interest rates, according to the Royal Institution of Chartered Surveyors (RICS). The latest report from RICS reveals the most widespread fall in British house prices since 2009.
The tightening lending environment has put considerable pressure on homebuyer activity, resulting in this downward trend. In July, RICS’s house price balance dropped to -53, surpassing expectations and marking the lowest reading since April 2009. The balance represents the difference between the percentage of surveyors reporting price increases and decreases.
Furthermore, the survey indicated a net balance of -44% of surveyors reported a decline in agreed sales during July. This finding reflects a weaker sales measure compared to the early stages of the pandemic.
This downward trend aligns with the previous observations made by lenders Nationwide and Halifax, both of whom have reported falling prices since August 2020. Simon Rubinsohn, RICS chief economist, warns of weakening demand, stating that economic uncertainty, rising interest rates, and a tougher credit environment pose challenges for prospective purchasers.
However, some respite may be on the horizon as several major lenders, including Halifax, HSBC, TSB, and Nationwide, announced cuts to their mortgage rates this week. Halifax, in particular, is set to reduce the cost of its loans by up to 0.71 percentage points, likely initiating a mortgage price war as brokers predict that other lenders will follow suit.
Despite these reductions, mortgage rates remain significantly higher than before the recent surge. Currently, the average two-year fixed mortgage rate stands at 6.83%, compared to 5.35% in April, according to Moneyfacts.
In other news, the financial markets anxiously await the release of the latest US inflation report, which is expected to show a rise to 3.3% in July, up from a two-year low of 3% in June. This could potentially generate concerns that the drop in American inflation has reached its lowest point.
Meanwhile, Asia-Pacific markets experienced a decline due to apprehension surrounding the White House’s announcement of a ban on US investment in Chinese technology. The executive order signed by President Joe Biden grants the US treasury secretary the authority to restrict or prohibit US investments in Chinese entities operating in the semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems sectors.
In summary, the UK housing sector is grappling with a sharp decrease in property prices, struggling under the weight of rising interest rates and a tighter lending environment. However, the recent mortgage rate cuts from major lenders may provide some relief for prospective buyers. Additionally, the financial markets are monitoring the US inflation report closely, with concerns that the decline in American inflation may have bottomed out. Meanwhile, Asia-Pacific markets face challenges following the White House’s introduction of an investment ban on Chinese technology.
