Announced more than a year ago, the correction in the British real estate market is now here. In August, according to calculations by Nationwide, one of the country’s leading mortgage lenders, prices fell 5.3% year-on-year. This is the biggest drop since 2009, during the great financial crisis.
Now the market is slowing down, with fewer and fewer buyers. The number of new property loans has fallen by a third compared to 2022. As for households that already have a loan, they are finding it increasingly difficult to repay it: late payments have jumped 29% over one year. .
This phenomenon, which is similar throughout the Western world, is the logical consequence of soaring interest rates. In the United Kingdom, the Bank of England increased its key rate from 0.1% to 5.25% in eighteen months.
Monetary tightening
For British households, the consequences are felt quite quickly. The vast majority of owners have a loan with a fixed rate for only two or five years. Then you have to renegotiate it. On average, just over 100,000 households find themselves faced with this obligation every month. The monetary tightening is therefore gradually transmitted to the real estate market. Now, a two-year fixed-rate home loan is trading at 6.7% on average, according to calculations from the Moneyfacts site. In 2021, it was 2.4%.
“This probably pushed buyers to postpone transactions hoping for stabilization [des taux d’intérêt] », estimates Kim Kinnaird, director of real estate loans at Halifax, one of the main British banks. She estimates that prices will continue to fall in the coming months, “until we find a new balance where buyers will be comfortable with the cost of borrowing, which is at its highest in fifteen years”.
However, no one is seriously talking about a real estate crash. The current drop in prices follows an incredible surge in recent years. Housing in the UK today remains 17% above its level at the start of 2020, just before the Covid-19 pandemic.
A lack of new housing
Furthermore, households have accumulated savings, and if payment delays are increasing sharply, it is after having reached a particularly low level in recent years. “The financial health of households is relatively solid, in aggregate. Wages are rising sharply and the flexibility of lenders makes us think that property prices are facing a slow puncture rather than a crash”estimates, in a note, Andrew Goodwin, chief economist at Oxford Economics.
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