House prices down by 3.1% in Q1 2023
Britain had the worst annual house price fall out of any major European economy in the first quarter of this year, according to a report from real estate consultancy Knight Frank.
House prices fell by 3.1% on an annual basis in the first three months of 2023, as persistent inflation and rising mortgage rates continued to affect prospective buyers.
During the same period, house prices also fell – albeit at a smaller rate – by 1% in Germany, while Spain, France, Italy saw house price growths of 3.1%, 2.7%, and 1.1% respectively.
The lack of growth came even before the average five-year fixed mortgage rate had risen above 6%, reaching its highest level since last November, with the average two-year fixed deal also well above the 6% mark.
The rise in rates coincides with nearly 10% of mortgage deals being withdrawn from the market by lenders due to increased interest rates, with Moneyfacts reporting that approximately 800 residential and buy-to-let deals have been withdrawn in total.
Mortgage rates also continue to be affected by the Bank of England’s decision to hike interest rates by 0.5 percentage points last month – increasing the base rate from 4.5% to 5%. This followed the announcement that the annual rate of inflation remained high at 8.7% in May.
“I think it has been a complete mistake to raise interest rates consistently, it could even tip the economy into recession,” commented David Hannah, chairman of Cornerstone Group International. “Everybody’s just about managing at the moment, and if you look at the underlying factors that created this inflationary cycle, they’re not in the control of consumers.
“I think the Bank of England should have called a hold on any rise in rates for one month to see what happens to inflation. It is clear to see how the UK property market has been affected negatively due to the 13 consecutive interest rate rises.”
Hannah added that the decision from the Bank of England to raise interest rates meant that homeowners coming off fixed-rate deals and moving straight into a 6% mortgage are going to be unable to afford them.
“That’s going to lead to a load of repossessions and forced sales which is not good news,” he said. “Fundamentally, it’s going to shatter confidence in the market.
“Such an environment will lead to a slowdown in property sales, as well as a potential decline in property prices, impacting both existing homeowners and those aspiring to join the property ladder.”
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