UK House Price Inflation Slows More Than Expected - Nationwide

(RTTNews) - UK house prices rose at a much slower than expected pace at the start of the year, and prices fell from the previous month, results of the Nationwide survey showed, as buyer demand was damped by the prospect of reduced real earnings and higher mortgage rates as many households reel under the pressure of the cost-of-living crisis that is the worst in several decades.

The house price index rose 1.1 percent year-on-year following a 2.8 percent increase in December, survey results from the Nationwide Building Society showed Wednesday. Economists had forecast a 1.9 percent gain.

On a month-on-month basis, house prices decreased 0.6 percent in January after a 0.3 percent slump in the previous month. Economists were looking for a repeat of the December fall.

House prices are now 3.2 percent below August's peak, Nationwide said.

The average price of a UK home fell to GBP 258,297 from 262,068 in December.

"It will be hard for the market to regain much momentum in the near term as economic headwinds are set to remain strong, with real earnings likely to fall further and the labor market widely projected to weaken as the economy shrinks," Nationwide's Chief Economist Robert Gardner said.

"However, there are some encouraging signs that mortgage rates are normalizing, but it is too early to tell whether activity in the housing market has started to recover," Gardner added.

Read more: UK BRC Shop Price Inflation Hits Record 8.0%

The economist pointed out that the fall in house purchase approvals in December reported by the Bank of England largely reflects the sharp decline in mortgage applications following the mini-Budget.

The biggest change in terms of housing affordability for potential buyers over the last year has been the rise in the cost of servicing the typical mortgage as a result of the increase in mortgage rates, Nationwide said.

Buyer affordability would improve if the recent reductions in mortgage rates and solid growth in incomes continue, combined with weak or negative house price growth. "Nevertheless, the overall affordability situation looks set to remain challenging in the near term," Gardner said.

Saving for a deposit is proving a struggle for many given the rising cost of living, especially those in the private rented sector where rents have been rising at their strongest pace on record, the economist added. Capital Economics economist Andrew Wishart said house pries are likely to fall about 12 percent in total before demand can recover enough to support a stabilization in prices.

The Bank of England is set to announce its latest policy decision on Thursday. The central bank is widely expected to raise the bank rate by 50 basis points to 4.0 percent.