By William Schomberg
LONDON (Reuters) – British house prices rose last month at their slowest pace since early in the coronavirus crisis and they look on course to fall as a surge in mortgage costs adds to uncertainty about the economy for home-buyers, a survey showed on Thursday.
Enquiries by new buyers fell for a fifth month in row and expectations for the year ahead suggested a slight fall in prices, according to the Royal Institution of Chartered Surveyors’ (RICS) monthly survey.
The RICS house price balance – measuring the difference between the percentage of surveyors reporting price rises and those seeing a fall – fell sharply to +32 in September from +51 in August, signalling a slowdown in price growth.
September’s reading was the weakest since July 2020, and a separate balance for sales volumes was the most negative since May 2020, the figures showed.
“Even though the headline price balance remains in positive territory for now, storm clouds are visible in the deterioration of near-term expectations for both pricing and sales,” RICS’s chief economist Simon Rubinsohn said.
“Looking further out, the picture portrayed by the RICS survey has clearly shifted in a negative direction,” he added.
After booming during and after the COVID-19 lockdowns as home-owners sought bigger properties, Britain’s housing market has cooled recently.
Mortgage lender Halifax has reported falling prices, in month-on-month terms, in two of the last three months. Rival lender Nationwide says British house prices failed to rise in monthly terms for the first time since July 2021 in September.
The Bank of England has raised borrowing costs from 0.1% in December 2021 to 2.25% now. Investors are betting on a full percentage-point increase at the BoE’s next policy announcement on Nov. 3 as it tries to get a grip on inflation which could be pushed higher by the tax cut plans of Britain’s new government.
A surge in borrowing costs in financial markets, fuelled by concerns among investors over the extra borrowing implied by the government’s plans, has pushed mortgage rates sharply higher.
Rubinsohn said the mortgage market had yet to settle “but it is difficult not to envisage further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labour market begins to reverse”.
A recent cut to Britain’s stamp duty tax on property purchases, part of finance minister Kwasi Kwarteng’s package of tax cuts, was set to be outweighed by the rise in mortgage costs, RICS said.
