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UK house prices tumble more than in Europe - interest rates to blame?

Britain has suffered the worst house price fall out of any major European economy according to a report from property consultancy Knight Frank. 

House prices fell by 3.1 per cent on an annual basis in the first three months of 2023 as persistent inflation and rising mortgage rates continue to affect prospective buyers. 

This is compared with a 1.0 per cent fall in Germany and a 2.7 per cent rise in France during the same period, whilst prices grew by 1.1 per cent in Italy and Spain recorded a 3.1 per cent growth. 


The lack of growth comes as the average five-year fixed mortgage rate has risen to 6.01 per cent according to Moneyfacts in data released this week. This marks the highest level since last November as the average two-year fixed deal now stands at 6.47 per cent, up from 6.42 per cent on Monday. 

The increase in rates for fixed-rate mortgages has pushed more homeowners to turn to variable rate deals. New data from trade association UK Finance has found that 13 per cent of new mortgages taken out in the three months to April were variable rate deals as homeowners are taking a chance that mortgage rates will fall in the long-term. 

The rise in rates coincides with nearly 10 per cent of mortgage deals being withdrawn from the market by lenders due to apprehensions about escalating interest rates. 

Meanwhile independent mortgage market monitor Moneyfacts reports that approximately 800 residential and buy to let deals have been withdrawn in total. 

The chairman of property consultancy Cornerstone Group International, David Hannah, sauys: “I think it has been a complete mistake to raise interest rates consistently, it could even tip the economy into recession. Everybody's just about managing at the moment and if you look at the underlying factors that created this inflationary cycle, they're not in the control of consumers. 

“I think the Bank of England should have called a hold on any rise in rates for one month to see what happens to inflation. It is clear to see how the UK property market has been affected negatively due to the 13 consecutive interest rate rises. 

"The decision from the Bank of England to raise interest rates to 5.0 per cent means that homeowners coming off fixed-rate deals and moving straight into a six percent mortgage are going to be unable to afford them. That's going to lead to a load of repossessions and forced sales which is not good news. Fundamentally it’s going to shatter confidence in the market. 

“Such an environment will lead to a slowdown in property sales, as well as a potential decline in property prices, impacting both existing homeowners and those aspiring to join the property ladder. The interest rates rise is also set to affect first-time buyers who may now be unable to make a first step onto the housing ladder due to unaffordable mortgage rates. 

“It will also have a knock-on effect on the rental market too – it has already been suffering from a lack of supply, and now, with a growing number of would-be buyers in need of a place to live, this is going to be exacerbated further. The result of this is that rental prices and competition will likely increase at a time when people are already struggling."

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  • icon

    Could the price falls here be bigger than in Europe because the preceding prices rises here were bigger?
    We had Sunak with all his ridiculous schemes that massively over heated the market. Stamp Duty holidays and turbo charged Help to Buy for example.
    In France prices don't seem to have changed much in the entire 19 years I've owned a house there. I believe they have much stricter lending criteria regarding the percentage of income that can be used for debt servicing. Mortgage payments , insurance, car loans, other loans, and child maintenance payments must require no more than 35% of income. Here lenders tend to lend on a multiple of gross salary. There it is the percentage of income all debt servicing payments will consume. The higher the interest rate the lower the amount that can be lent.



    That's interesting about the 35%. At one point we were so overstretched when interest rates were around 15% that we would have starved without my wife's salary.

    We didn't ask or deserve sympathy but now apparently we deserve contempt for reaping the rewards of earlier sacrifice and hard work.

  • icon

    I believe it is section 24 causing the distress as interest rates rise. Anyone with large borrowing on tracker or variable is getting hammered. A 20% credit for your interest at these rates is completely insufficient .This allied with the strong possibility of an anti landlord RRB and likelihood of a labour government incoming will make landlords sell up.. Selective licencing is on the rise, all combining to get landlords selling


    Section 24 is hell for those of us it affects. We are only one section of the landlord community though. It doesn't effect incorporated landlords or those with no mortgage or those with only one or two properties and a low earned income or pension that keeps them in the basic rate tax band.

    I guess it disproportionately affects the marginal tenants as we are the ones most likely to house people who don't quite pass referencing. About 25% of my tenants fail referencing on something. Usually the wrong type of employment contract or fractionally under in affordability.

  • Peter Why Do I Bother

    House prices tumbling in the UK more than Europe is also because a larger percentage of people in the UK buy property. The model in mainland Europe is to rent, it works and has Jo has put stricter lending criteria. Also with a larger number of people renting in Europe there isn't the constant kicking of landlords because those governments would have an even bigger problem. They are embraced and motivated to keep tenants in good quality accommodation.


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