According to the international organization of chartered surveyors RICS, the UK housing market fell sharply in October. The October survey shows that prices have been reduced for most properties. In fact, the number of properties is the largest since 1978, when the research began. The study shows that price growth does not just slow down at the beginning of the fourth quarter, but is already falling. While a correction in house prices is widely expected as part of the ongoing recession, it appears to be moving faster than expected. While the sudden halt in house price growth was clearly a big surprise, it’s not a mystery. Funding for home loans fell sharply in October as financial institutions reacted sharply to a sharp rise in interest rates and expectations of a change in the Bank of England bank rate after the financial fiasco at the end of September. Although the situation in the UK financial markets has completely changed after the overthrow of the government and the resignation of former Prime Minister Liz Truss, the reaction to mortgage pricing has been delayed. It remained high throughout October. Although mortgage rates have fallen from a peak of about 6.5% (a five-year flat rate) to about 5.6%, they are still restrictive.
Meanwhile, demand for housing collapsed in October after rising mortgage rates. Home loan applications from new buyers fell to -54.5% from -36.3% in September. And while the balance of demand remained well above the all-time low of -95.9% in April 2020 during the first coronavirus lockdown, it is very fast approaching the lowest level of the global financial crisis of -67.3% in April 2008.
In response to the decline in demand, price expectations are falling sharply. The fall to -49.1% in October from -34.2% in September is in line with house prices, which fell 7% over the 12-month period.
However, we expect a further decline in demand during the winter, and we estimate that prices will decrease by almost 10% by the second quarter of 2023. After the recession ends, around spring, the housing market will recover due to recessionary inflation and borrowing costs. .
* Mr. Calum Pickering is an economist at Berenberg Bank.
Lori Barajas is an accomplished journalist, known for her insightful and thought-provoking writing on economy. She currently works as a writer at 247 news reel. With a passion for understanding the economy, Lori’s writing delves deep into the financial issues that matter most, providing readers with a unique perspective on current events.