UK House Prices Fall Most Since 2009; Mortgage Approvals Decline

UK house prices declined the most since 2009 in May, and mortgage approvals and lending dropped in April, indicating deterioration in the housing market activity amid the rising interest rates.

The house price index slid 3.4 percent from a year ago, marking the biggest fall since 2009, the Nationwide Building Society reported Thursday. The drop followed a 2.7 percent decrease in April.

House prices posted a monthly fall of 0.1 percent in May, reversing a 0.4 percent rise in April. Nonetheless, the drop was slower than the 0.5 percent decrease economists had forecast.

Nationwide cautioned that headwinds to the housing market are likely to strengthen in the near term.

As inflation slowed less than expected in April, investors’ expectations for the future path of the interest rate increased noticeably, Nationwide’s Chief Economist Robert Gardner said. The economist expects rates to remain higher for longer.

Nonetheless, Gardner said a relatively soft landing remains the most likely outcome since labor market conditions remain solid. Moreover, household balance sheets look to be in a relatively good shape.

“While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks,” Gardner said.

Data released by the Bank of England on Thursday showed that the number of mortgage approvals, an indicator for future borrowing, declined to 48,700 in April from 51,500 in March.

The effective interest rate on newly drawn mortgages gained 5 basis points to 4.46 percent in April.

The BoE raised its benchmark rate over the last twelve consecutive sessions, taking the bank rate to the highest since 2008.

Mortgage lending continued to decline in April to a net repayment of GBP 1.4 billion from net zero in March. The latest figure was the lowest since July 2021. Gross lending fell to GBP 17.0 billion from GBP 19.7 billion in March.

Consumer credit was broadly unchanged from March at GBP 1.6 billion. The borrowing was split between GBP 0.7 billion on credit cards and GBP 0.9 billion through other forms of consumer credit.

Data showed that businesses borrowed net GBP 0.5 billion in April compared to GBP 2.7 billion in March.

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