Breaking News: UK House Prices Fall Steeply in March

In March 2023, UK house prices fell by 3.1%, marking the steepest annual decline since 2009.

In March 2023, UK house prices fell by 3.1%, marking the steepest annual decline since 2009. This surprising drop in prices exceeded economists' forecasts of a 2.2% decrease. With prices now down 4.6% from their August 2022 highs, the average value for a home has decreased to £257,122 ($318,320). Soaring interest rates were identified as the main culprit, sending borrowing costs skyrocketing and affecting the housing market.

The Bank of England (BOE) has been raising the base interest rate incrementally to control inflation since late 2021. It has now increased the interest rate to 4.25%, significantly higher than near-zero levels before the pandemic. The BOE estimates that an additional 2.5 million UK mortgage borrowers will face higher borrowing costs as their fixed-rate contracts expire, leading to increased monthly repayment amounts of around £250.

UK House Prices Fall Steeply in March

Furthermore, other factors such as the expiration of government incentives and the end of a support program for first-time home buyers also hurt the market. The ongoing financial crisis and high inflation result in tight household economies and volatile consumer confidence, making it difficult for the market to regain momentum.

The UK's economic growth in the fourth quarter of 2022, which avoided stagnation, was a silver lining. Household income levels also increased for the first time in over a year. However, most analysts believe that the housing slump will continue until the BOE ends its fastest monetary tightening cycle in three decades.

Andrew Wishart, senior real estate economist at Capital Economics, believes that most price corrections are yet to come given that home prices are still overvalued in the current environment of higher mortgage rates. Gabriella Dickens, economist at Pantheon Macroeconomics, agrees that demand will not recover until mortgage rates or home prices fall significantly further. Even so, the possibility of mortgage rates falling in the near term is minimal.

Despite the slump in UK house prices, Rightmove, the largest property portal in Britain, reported that asking prices for properties in the market are still rising. Home surveyors are also becoming increasingly optimistic, and mortgage approvals counted by the Bank of England increased in February, albeit still below last year's highs.

The housing market appears to be in a state of flux, with contradictory signals making it difficult to forecast its performance. However, one thing is clear: home prices have fallen due to the BOE's interest rate hikes, and the market will remain weak unless the interest rates or home prices drop significantly.