UK house price growth slows in December as prices dip again – business live | Business

Introduction: UK house prices drop 0.1% in December

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK house price growth has slowed sharply again this month, new data shows, as the surge in mortgage rates in the autumn cools the market.

Building society Nationwide has reported that prices fell by 0.1% in December, the fourth consecutive monthly price fall – and the worst run since 2008. That follows a 1.4% drop in November.

UK house prices to December 2022
Photograph: Nationwide

Prices were 2.5% lower than their August peak (after taking account of seasonal effects) Nationwide says, with the average price now £262,068.

This pulled annual house price growth down to 2.8%, from 4.4% in November.

Mortgage rates surged after the disastrous mini-budget of late September, deterring some borrowers, and were slow to drop back since.

Robert Gardner, Nationwide’s chief economist, says the recent weakness in mortgage applications may represent an early seasonal slowdown:

“While financial market conditions have settled, mortgage rates are taking longer to normalise and activity in the housing market has shown few signs of recovery.

“It will be hard for the market to regain much momentum in the near term as economic headwinds strengthen, with real earnings set to fall further and the labour market widely projected to weaken as the economy shrinks.

UK house price inflation to December 2022
Photograph: Nationwide

Nationwide’s housing report also found that prices slowed across the UK. Here are the key points:

  • All regions record a slowdown in annual price growth in the final quarter of the year

  • East Anglia the strongest performing region in 2022, while Scotland was weakest

  • Gap between weakest and strongest regions smallest since Society’s regional indices began in 1974

  • Since Q1 2020, price growth in detached properties was around double that of flats

Housing experts have predict the property market will cool sharply next year after a bumpy 2022, due to higher mortgage rates and a possible recession.

Also coming up

In the City, it’s the final trading day of 2022, with the market due to close early at lunchtime.

It’s been very volatile year, in which global stocks have lost around a fifth of their value as the Ukraine war has rocked markets, driving up inflation and prompting central banks to lift interest rates sharply.

The UK’s FTSE 100 index has outpaced most international rivals, though. It’s up around 1.7% since the start of January, helped by oil companies BP and Shell (both up over 40% in 2022), and defence firm BAE Systems (up 56% this year).

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The fourth consecutive monthly drop in UK house prices adds to concerns that a deeper slump may now be underway, warns Bloomberg.

Here’s their report:

Nationwide Building Society said its measure of property costs dropped 0.1% in December, marking the longest downturn since 2008 at the end of the global financial crisis.

For 2022 as a whole, Nationwide said property prices finished the year 2.8% above where they were at the end of last year, about a third of the pace of growth in 2021. The average price of a house in December fell to £262,068 ($315,660).

Soaring interest rates and the sharpest cost-of-living squeeze in memory strained affordability for many buyers, whose wages are falling further behind the worst bout of inflation in four decades. Mortgage rates are now near where they were in 2008 when housing costs were in the middle of a 16-month slump.

Knight Frank: UK house prices will fall 10% over the next two years

Borrowing costs may have stabilised, but at higher levels than before September’s mini-budget, points out Tom Bill, head of UK residential research at estate agent Knight Frank.

This, Bill predicts, will weigh on prices next year.

“The steep monthly house price declines that followed the mini-Budget have reduced as mortgage market volatility calms down. However, borrowing costs have become more expensive as well as more stable, which will keep downwards pressure on prices.

Despite the fact mortgage rates should keep edging down, when the spring selling season gets underway in 2023, a fixed-rate mortgage is likely to be more than 2.5 percentage points higher than this spring, meaning many movers will have to reassess their options.

We believe UK house prices will decline by around 10% over the next two years as these sorts of recalculations happen, taking prices back to the level of summer 2021.”

Higher mortgage costs, along with the rising cost of living, are having an inevitable impact on housing affordability, says Mark Harris, chief executive of mortgage broker SPF Private Clients.

’The swap rate volatility sparked by the the mini-Budget has largely dissipated and mortgage rates have settled on the back of this. Lenders continue to chip away at the pricing of their fixed-rate mortgages but even so, there are still many people coming off fixes who are in for a payment shock. We expect lenders to come to market with more attractive pricing in January as they start from scratch in terms of building their business for the new year.

’Further interest rate rises are on the cards in the coming year as the Bank of England continues in its efforts to bring inflation under control. However, a lower peak in rates than previously thought may be sufficient, making life easier for borrowers.’

Scotland was the weakest performing region of the UK, with annual house price growth of 3.3%.

Wales saw a significant slowdown – annual growth slowed from 12.1% in the third quarter of 2022 to 4.5% in Q4.

Northern Ireland saw prices increase by 5.5% during 2022, compared with a 12.1% rise during 2021.

The 0.1% drop in UK house prices in December is smaller than expected by economists, points out Victoria Scholar, head of investment at interactive investor:

UK December Nationwide house prices fell by 0.1% month-on-month better than expectations for a drop of 0.7% but improving versus November’s decline of 1.4%. Year-on-year house prices grew by 2.8% also ahead of forecasts for 2.3% but falling versus November’s reading of +4.4%.

December saw the fourth consecutive month of negative house price growth, the worst run since 2008, driving the annual figure down significantly versus November with all regions suffering a slowdown. East Anglia was the strongest performing region while Scotland was the weakest. The housing market has been struggling amid pressures from the fallout from the mini-budget, the Bank of England’s rate hiking path, the cost-of-living crisis and a looming recession. Many potential buyers are holding off from looking for a property for now, hopeful that house prices will continue to soften and mortgage rates will come down next year.

Shares in the housebuilder sector have had a tough year with Taylor Wimpey down over 40%, Barratt Development down over 45% and Persimmon down over 55% YTD.”

Given the “chaotic backdrop” and elevated mortgage rates in recent months, potential house buyers may have opted to wait until the New Year to see how mortgage rates evolve before deciding to step into the market, suggests Nationwide’s chief economist Robert Gardner.

The pickup in activity in the New Year is likely to “remain tepid until the broader economic outlook improves”, Gardner predicts.

He’s hopeful, though, that “a soft landing” can be achieved next year, suggesting prices may fall by 5% in 2023 (other forecasters have suggested they could drop by 10%).

Gardner says:

“Longer-term interest rates, which underpin mortgage pricing, have returned towards the levels prevailing before the mini-Budget. If sustained, this should feed through to mortgage rates and help improve the affordability position for potential buyers, as will solid rates of income growth (with wage growth currently running at a c.7% pace in the private sector), especially if combined with weak or negative house price growth.

“But the main factor that would help achieve a relatively soft landing (especially for house prices) is if forced selling can be avoided, and there are good reasons to be optimistic on that front. Most forecasters expect the unemployment rate to rise towards 5% in the years ahead – a significant increase, but this would still be low by historic standards.

Introduction: UK house prices drop 0.1% in December

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK house price growth has slowed sharply again this month, new data shows, as the surge in mortgage rates in the autumn cools the market.

Building society Nationwide has reported that prices fell by 0.1% in December, the fourth consecutive monthly price fall – and the worst run since 2008. That follows a 1.4% drop in November.

UK house prices to December 2022
Photograph: Nationwide

Prices were 2.5% lower than their August peak (after taking account of seasonal effects) Nationwide says, with the average price now £262,068.

This pulled annual house price growth down to 2.8%, from 4.4% in November.

Mortgage rates surged after the disastrous mini-budget of late September, deterring some borrowers, and were slow to drop back since.

Robert Gardner, Nationwide’s chief economist, says the recent weakness in mortgage applications may represent an early seasonal slowdown:

“While financial market conditions have settled, mortgage rates are taking longer to normalise and activity in the housing market has shown few signs of recovery.

“It will be hard for the market to regain much momentum in the near term as economic headwinds strengthen, with real earnings set to fall further and the labour market widely projected to weaken as the economy shrinks.

UK house price inflation to December 2022
Photograph: Nationwide

Nationwide’s housing report also found that prices slowed across the UK. Here are the key points:

  • All regions record a slowdown in annual price growth in the final quarter of the year

  • East Anglia the strongest performing region in 2022, while Scotland was weakest

  • Gap between weakest and strongest regions smallest since Society’s regional indices began in 1974

  • Since Q1 2020, price growth in detached properties was around double that of flats

Housing experts have predict the property market will cool sharply next year after a bumpy 2022, due to higher mortgage rates and a possible recession.

Also coming up

In the City, it’s the final trading day of 2022, with the market due to close early at lunchtime.

It’s been very volatile year, in which global stocks have lost around a fifth of their value as the Ukraine war has rocked markets, driving up inflation and prompting central banks to lift interest rates sharply.

The UK’s FTSE 100 index has outpaced most international rivals, though. It’s up around 1.7% since the start of January, helped by oil companies BP and Shell (both up over 40% in 2022), and defence firm BAE Systems (up 56% this year).

The agenda