UK Housing Market Sees ‘Signs of a Recovery’ After 7 Consecutive Falls

An aerial view of terraced homes in Colne, England, on April 4, 2023. Christopher Furlong/Getty Images

April saw a 0.5 percent rise in house prices in Britain, in the first surge since August 2022.

However, financial experts have argued that Britons should expect a “fairly pedestrian” upturn in the housing market, if any, owing to the ongoing imbalance between low wages and rising inflation.

Nationwide Building Society, a British mutual financial institution, reported on May 2 that the annual rate of house price growth has improved to -2.7 percent from -3.1 percent in March.

Commenting on the figures, Nationwide’s Chief Economist Robert Gardner said: “While annual house price growth remained negative in April at -2.7 percent, there were tentative signs of a recovery with prices rising by 0.5 percent during the month (after taking account of seasonal effects). April’s monthly increase follows seven consecutive declines and leaves prices 4 percent below their August 2022 peak.”

He added that recent Bank of England data indicate that Britain’s housing market activity remained subdued in the opening months of 2023, adding that the number of mortgages approved for house purchase in February was nearly 40 percent below the level prevailing a year ago, and around a third lower than pre-COVID-19 pandemic levels.

“However, in recent months industry data on mortgage applications point to signs of a pickup,” Gardner said.

Market Volatility

Financial turmoil and uncertainty ensued in Britain following the announcement of economic policies and tax cuts by the chancellor of the Exchequer under former Prime Minister Liz Truss in September 2022. Truss’s government proposed to cut income taxes without a clear plan to pay for the cuts, which in turn triggered market volatility.

According to Gardner, while mortgage interest rates now are “well below the highs” seen in the wake of the 2022 mini-Budget, rates are still “more than double the level prevailing a year ago.”

While consumer confidence is subdued, said Gardner, if inflation falls sharply in the second half of 2023 as expected, it would “likely further bolster sentiment, especially if labour market conditions remain strong.” This in turn would likely support a “modest” recovery in the housing market, he added.

However, Gardner believes that “any upturn is likely to remain fairly pedestrian” owing to a drop in average earnings and high inflation.

Earlier this year, Nationwide looked into the consecutive slowdown in house prices, comparing results regionally across the UK. Scotland remained the weakest performing region “with prices down 3.1 percent compared with a year ago” compared to the rest of the country, including the capital, London.

Short-term challenges do persist, such as relatively high mortgage rates forcing some highly leveraged property owners to sell, Valentins Mucenieks, head of sales at real estate agency Life Residential, told The Epoch Times. However, he said, in return there is a surge in interest from cash buyers who are keen to capitalize on lower house prices and take advantage of the favourable exchange rates for British pounds.

In the latest update on the housing market figures, the reported 0.5 percent rise means that an average home would now cost £260,441, compared to £257,122 in March. However, this is still 2.7 percent lower than a year ago.

Rising Rents

Rent prices across Britain, on the other hand, have been soaring every quarter since the end of 2019, owing to high demand and low availability.

Fluctuations in demand for rentals and interest in ownership during the pandemic, as well as the possibility of working from home instead of needing to live close to offices, have been among key factors driving housing preferences, according to the Office for National Statistics (ONS).

Private rental prices paid by tenants in the UK rose by 4.7 percent in the 12 months to February 2023, up from 4.4 percent in the 12 months to January 2023, according to the ONS.

Consumers in Britain could still hope for better days, Gardner said.

“If gains in nominal incomes remain solid (wage growth has been running at above 7 percent in the private sector), this, together with weak or declining house prices, will help improve housing affordability over time, especially if mortgage rates continue to trend lower,” he concluded.

Mucenieks said that there is an expectation of a healthy transactional volume in the next 12 months. “This is due to rotation of ownership but without significant changes to the capital values, as many short-term concerns are outweighed by shortage of available housing and strong rental values. This is setting the stage for potential growth in the future, ” he said.