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The research found that inflation has masked the true extent of the recent fall in UK house prices, with the actual situation of housing wealth in many parts of the UK and country no better than it was on the eve of the 2008 financial crisis.
Since their peak in March 2022, UK house prices have fallen slightly by 2.8% in nominal terms, but by 13.4% in real terms, according to analysis of the national house price index by estate agent Savills. Savills said average real house prices were no higher than at the end of 2015 after adjusting for inflation.
Lucian Cook, director of residential research at Savills, said: “The actual adjustment in average UK house prices is much larger due to high inflation.” The analysis shows that if the average buyer buys If purchased after December 2015, their home will experience a real loss in value.
In some parts of the UK and countries, house prices have yet to return to 2007 levels, adjusted for inflation. Savills found that house prices in the north-west of England, Yorkshire, the Humber and the West Midlands, as well as Wales, Scotland and Northern Ireland, are all well below their pre-financial crisis peak in 2008-09.
Real prices in the north of England have fallen by 27% since their peak in the third quarter of 2007. Over the same period, real prices fell by 21% in Yorkshire and the Humber; they grew by 11% in the East Midlands; and by 18% in Wales.
Cook said homeowners may not feel the loss in value because the nominal value of their home may or may not have gone up significantly over the past few years, but inflation has done its job of eroding the underlying value, causing an adjustment in real value. terms. He added that to find the last time house price growth exceeded inflation for any sustained period, we have to go back to the period between the mid-1990s and 2007.
In the seven months from September 2022 to March 2023, UK consumer price inflation (excluding housing) ran above 10%. That number fell to 6.7% in the year to August, but remains high.
Rising inflation has led the Bank of England to raise official interest rates from 0.1% to 5.25% since December 2021 and has pushed up mortgage rates, dampening demand in the housing market.
Figures from data provider Moneyfacts show that the average five-year fixed rate was 5.93%, compared with 2.55% in October 2021, although increased competition among lenders for mortgage rates has seen fixed rates fall in recent weeks.
Rachel Springall, finance expert at Moneyfacts, said average two- and five-year fixed rates had fallen for the second month in a row, providing borrowers with potentially cheaper deals. “These are encouraging signs for borrowers who may be seeking a new fixed rate deal, but who may still be on the sidelines on lockdown in the hope that rates will fall further in the coming weeks.”
He said the “gradual normalization” of interest rates by the Bank of England, expected to be implemented from next year, would ease pressure on mortgage affordability. However, it is still difficult for the market to enter a new period of “inflation +” housing price growth.
“This raises the question: whether the golden age of asset price inflation well above the underlying inflation rate is over. When will it return? The answer will depend heavily on changes in interest rates.”
Svlook
