U.K. Housing Market Faces Steepest Decline in 14 Years

The United Kingdom’s housing market experienced a significant setback in July, witnessing the most substantial price drop in 14 years, according to a report by leading mortgage provider Nationwide. The company’s home price index registered a seasonally adjusted decline of 0.2% in July, resulting in a significant year-over-year decrease of 3.8%.

The sharp decline in home prices comes amidst the backdrop of the Bank of England’s aggressive measures to combat surging inflation, which has reached nearly 8%, placing it among the highest in the industrialized world. The central bank’s continuous interest rate hikes have raised the market’s forecast for peak bank rate to as high as 6.5%. Unlike the U.S., where longer-term mortgages are common, the U.K.’s housing market primarily relies on mortgages with shorter durations of two to five years, rendering it more sensitive to changes in interest rates.

Nationwide highlighted the impact on prospective buyers, revealing that an average-wage earner purchasing a typical first-time buyer property with a 20% deposit would face monthly mortgage payments amounting to 43% of their take-home pay. This marks a significant increase from 32% a year ago and surpasses the long-run average of 29%.

The housing market’s declining health is evident in the sharp reduction in housing transactions as well. In June, there were only 86,000 housing transactions, representing a 15% year-over-year drop, further underscoring the challenges faced by the U.K.’s property market in the face of soaring interest rates and inflation pressures.