High interest rates
British property prices fall significantly
9/1/2023 5:27 p.m
The series of interest rate hikes is putting pressure on the British property market. In August, prices fell more than they have since the financial crisis. However, up until a year ago, several factors had also ensured a strong plus.
Real estate prices in Great Britain fell in August at the highest rate since the financial crisis. They fell by 5.3 percent compared to the previous year, as announced by the leading building society Nationwide. That is the biggest minus since July 2009. From July to August alone, real estate prices fell by 0.8 percent. “Given the magnitude of the rise in the cost of borrowing in recent months, the slowdown is not surprising,” said Nationwide chief economist Robert Gardner. The Bank of England has hiked interest rates a total of 14 times since December 2021, to a current 5.25 percent. A further increase to 5.5 percent is expected on the financial markets this month. The British central bank wants to use this to combat persistently high inflation.
“We believe the August data marks the start of a significant further decline in house prices,” said Capital Economics analyst Andrew Wishart. According to a survey, economists and real estate experts assume that prices will also fall for the year as a whole – by an average of four percent. The pessimists among the analysts even think a minus of ten percent is possible. In 2024, prices should then stabilize before 2025, when they rise by a little more than three percent.
Before peaking in September 2022, UK house prices had risen by more than a quarter since the outbreak of the coronavirus pandemic. This was due to higher demand for housing, low interest rates and temporary tax incentives.
Mortgage loan commitments last month were about 20 percent below 2019 levels, Gardner said. And while the negative trend is likely to continue, Nationwide expects a “soft landing” for the real estate market. The reasons for this are a comparatively stable labor market and wages that are likely to continue to rise.
Residential real estate prices are also falling in Germany: According to a study by DZ Bank, they are likely to fall between four and six percent this year given the difficult framework conditions such as rising interest costs and expensive materials. In 2022 they had increased by seven percent. “Measured against the significantly poorer financing conditions and the uncertainty about future investments in energy renovation and new heating technology, the price drop in the single-digit percentage range appears moderate,” says the study. “It is possible that sellers are still reluctant to make price concessions because they are speculating on falling interest rates, for example.” It is quite possible, but by no means certain, that prices will fall further with a time lag.