(Adds detail on housing market)
By David Milliken
LONDON, Feb 1 (Reuters) - British house prices dropped
by a bigger-than-expected 0.6% in January and are now 3.2% below
their peak in August, following a surge in borrowing costs and
broader inflation pressures, mortgage lender Nationwide Building
Society said on Wednesday.
January's decline in house prices was the fourth drop in a
row and twice the size expected in a Reuters poll of economists,
adding to signs that the market is slowing rapidly.
Interest rates have risen sharply since December 2021 and
there was major disruption to the mortgage market in late
September and October following former prime minister Liz
Truss's "mini budget", which set market interest rates soaring.
"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 labour market
widely projected to weaken as the economy shrinks," Nationwide
chief economist Robert Gardner said.
Nationwide forecast in December that house prices would fall
5% in 2023.
House prices in January were 1.1% higher than a year
earlier, Nationwide said, the smallest year-on-year increase
since June 2020 and down from a 2.8% increase in December.
Economists polled by Reuters had expected a rise of 1.9%.
British house prices soared by more than a quarter during
the COVID-19 pandemic, boosted by ultra-low interest rates, tax
incentives and broader demand for more living space during
lockdown, which was seen in other Western countries too.
However, the boom has now gone into reverse, accelerated by
disruption to lending since the mini-budget.
The Bank of England reported on Tuesday that the number of
mortgages approved in December fell to its lowest since the
global financial crisis, excluding the very start of the
COVID-19 pandemic when there were strict lockdown restrictions.
Gardner said this fall reflected a drop in mortgage
applications after the mini-budget, and that it was too soon to
know if the volume of house purchases would recover.
While lenders are now more willing to offer mortgages than
just after the mini-budget, the BoE has steadily raised interest
rates, and is expected to increase its main rate by half a
percentage point to 4% on Thursday, the highest since 2008.
(Reporting by David Milliken; Editing by Sarah Young and Sharon
Singleton)
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