UK house prices dropped more than expected last month and posted the first annual contraction since the start of the pandemic as inflation and higher mortgage rates hit prospective buyers.
Property prices fell 1.1 per cent in February, the largest decline in a decade, compared with the same month last year, down from a 1.1 per cent increase in January, mortgage provider National said on Wednesday. Economists in a Reuters poll had forecast a 0.9 percent contraction.
It was the first annual contraction since June 2020 when the housing market was effectively shut during the Covid-19 lockdown.
Excluding the early phase of the pandemic, the last time UK house prices contracted on an annual basis was December 2012.
Mortgage rates rose to a decade high in December following interest rate expectations set by the Bank of England as it tries to rein in historically high inflation.
The average house price fell to £257,406 in February, down from a peak of £273,751 in August.
The weakness of the housing market “likely reflects the lingering impact on confidence as well as the cumulative impact of the financial pressures that have been weighing on households for some time”, said Robert Gardner, National’s chief economist.
House prices were down 0.5 per cent compared with January, the latest monthly decline since prices stopped rising in August 2022.
Gardner said “it will be difficult for the market to regain much momentum in the near term since economic headwinds look set to remain relatively strong”.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said house prices will “continue to decline over the next six months or so, resulting in a peak-to-trough fall of about 8 per cent”. However, she expects house prices to increase again in 2024 as “mortgage rates fall substantially and households benefit from lower wholesale energy prices”.