BUTin the midst of dismal economic data last a week, one The statistics took many analysts by surprise. Halifax, the country’s largest mortgage lender, said the UK house price growth not only slowed down down but became negative. Just one same month ago bank It was announced that prices have skyrocketed record high. Could this dramatic shift start of the end for in great British housing boom?
After years of watching homeownership slip more and more out of reach, it might be tempting for rent a generation to greet news of a house price slow down with open arms. But it would be premature to reach for champagne. Even house As prices continue to fall, any potential gains will almost certainly be offset by other economic factors. There is also good the reasons treat this data with caution. Average price fell by just £365 in July – or 0.1% per month on month and yet remains more over £30,000 higher than at the same time last year. Figure also reflects only data from one lender, and represents the average of UK prices.
Behind the overall numbers, there are still signs that the deteriorating economic outlook is taking its toll. on most loved in the UK asset class. For past decade, combination of deliberate government policy, minimum interest rates and 895 billion pounds. of quantitative easing has helped advance house prices on record maximums. During the Covid-19 pandemic, another unexpected shot of body injected with adrenaline market like rise of remote workers, recently accumulated savings and printing duty cuts triggered “race for space”.
The conditions that caused this unforgiving rise are starting to unravel. bank last week of England raised the base percentage rate up to 1.75% – 13-year high. Many economists expect rates rise farther in months ahead. Central banks around world turned away on quantitative easing and are now resorting to “quantitative tightening” by shrinking their balance sheets after a decade of dramatic extension. result there has been a significant and sudden slowdown of Frame market Events. Number of Mortgage approvals have fallen for in past five months in in a row, and housing deals have recently fallen by 55% compared to with in the same time last year.
For homeowners property market slowdown likely to put additional pressure on family finances at a time when budgets already compressed. According to trade body UK Finance, about 2 million homeowners on monthly payments on variable or mortgage loans automatically increase. Another 1.8 million households on fixed-rate mortgage deals that are expiring next year face pay an additional £2,664 per annum year on average.
The economic picture of the UK is likely to complicate matters rather than easier, for members of generating rent for buy a home. UK ready to enter recession later year. households facing a real-term pay cut of almost 8% on average. For low income households on standard of living will rise significantly higher. This erosion of household income will make it difficult to save for deposit, which remains the single biggest barrier to homeownership. Banks have already began to tighten lending criteria and withdraw more risky mortgage products from circulation. market, which complicates for first-time buyers borrow large sums. At the same time, investors with big cash piles can use of any recession for the vacuum cleaner up characteristics on cheap.
BUT property market slow down also poses wider challenges for economic model. Britain has long relied on floating hull market refuel growth and consumption in absence of base performance growth. Homeowners usually spend more when house Prices rise and less when house prices are falling. Last year £4.4 billion of equity was converted to cash using share issue products highest figure on record. For part of in population, double-number house price growth provided a means of building wealth and economic security in age of stagnation of wages and reduction of pensions.
British political leaders have a habit of throwing money in the building market when is that suits them – from the scheme “Help to buy”, introduced under David Cameron, to the brand duty holiday under Boris Johnson. It is quite possible that a deep restructuring of the way is currently taking place, where the era of low consumer price inflation and high asset price inflation is turning on this is head. This could mean a long period of stagnant house prices where transactions fall and market stops or more heavy price shock. Either way it will create a huge challenge to British model of capitalism.
Excommunication from Great Britain economy off his dependence on house price inflation is of of course, definitely. Soaring house prices transfer wealth away from those who don’t know property to those who do. This undermines wealth by diverting investment in housing construction. market instead of more productive and socially useful areas. Correcting this requires a strategic, long-term plan for go to new economic model while minimizing collateral damage. Hoping to be changeable market forces will come to the rescue mistake which will almost certainly leave the majority people the worst off.