Rising Interest Rates Expected to Cool U.K. Housing Market
The U.K.’s booming property market is headed for a slowdown as a squeeze on living standards and rising interest rates sap demand, according to Nationwide Building Society.
The average price of a home rose 0.7% in October, the mortgage lender said Wednesday, even after the ending of a temporary tax cut imposed by the government last year. Economists had expected a gain of just 0.3%. The annual pace of growth was little changed at 9.9%.
The increase meant the price of a typical U.K. home has now passed the 250,000 pounds ($340,683) mark, a rise of 30,728 pounds since the pandemic struck in March 2020.
October saw the ending of a tax cut on purchases that has helped fuel a housing boom since it was introduced in July 2020. But other factors supporting the market remained in place, including shortages of homes for sale and pandemic-driven demand for larger properties away from city centers.
Nationwide said the outlook is “extremely uncertain,” with accelerating inflation and looming tax rises piling pressure on family budgets. The expectation that the Bank of England will raise interest rates to contain inflation as early as Thursday is also prompting high street banks to hike mortgage costs.
“Consumer confidence has weakened in recent months, partly as a result of a sharp increase in the cost of living,” said Robert Gardner, Nationwide’s chief economist. “Even if wider economic conditions continue to improve, rising interest rates may exert a cooling influence on the market, though the impact on existing borrowers is likely to be modest.”
Homeowners will be partly insulated because the share of outstanding mortgages on variable interest rates has fallen to a record low of around 20%, down from a peak of 70% in 2001, Nationwide said.
Markets expect the BOE to increase its benchmark rate, currently 0.1%, to 1% by the middle of next year. That would see typical payments on a variable-rate mortgage rise by 64 pounds a month to 660 pounds, according to Nationwide.
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