Property prices declined by 5.3% compared to the previous month, as the large construction savings fund Nationwide recently announced its investigation. From July to August alone, real estate prices fell by 0.8%.
Negative Trend in Mortgages
As Reuters reports, the reason for the development is rising interest rates. “Given the magnitude of the rise in credit costs in recent months, the easing is not surprising,” said the world´s largest Nationwide Building Society chief economist, Robert Gardner.
The Bank of England (BoE) has raised its interest rates 14 times since December 2021 to 5.25%. In the financial markets, another interest rate increase is expected to reach 5.5% later this month. By doing so, the British Central Bank aims to combat high inflation.
Mortgage commitments were approximately 20% below the 2019 level in the past month, Gardner said. This negative trend is expected to continue. According to a calculation by the British National Institute of Social and Economic Research (NIESR), up to 1.2 million households in the UK could go bankrupt by the end of the year. The increasing burden of interest rates that exceed their incomes leads to the absorption of all household savings.
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Wages must rise
According to the NIESR estimates, monthly interest payments will increase by about 50% on average. The average home on the island is now estimated to be worth GBP 286,532 (EUR 333,000), says Kim Kinnaird, director at Halifax. In the southwest of the country and especially in London, even a small house can quickly cost twice as much. But the market price level is falling. “Property prices have dropped by about GBP 3,000 on the country average, compared to 12 months ago, and have fallen by GBP 7500 since their peak in August 2022,” Kinnaird said. This represents a decline of 2.5% since autumn 2022.
Nevertheless, Nationwide expects a “soft landing” for the real estate market. The unemployment rate is not expected to rise above the mark of 5%, and wages are also expected to increase significantly, the explanation said.
