After soaring credit rates in the UK, demand for real estate collapses

With Britain’s fiscal problems, interest rates rose. Property sales have since plunged and prices are expected to fall in 2023.

Demand for property purchases in the UK has fallen by 44% since former Prime Minister Liz Truss’s government’s mini-budget, which triggered market turmoil and a rise in interest rates.

“Demand from potential buyers has fallen by 44% since the mini-budget and sales by 28% have fallen back to their pre-pandemic levels,” real estate classifieds website Zoopla notes in a study published on Monday.

The “mini-budget”, presented on September 23 by Kwasi Kwarteng, who was chancellor under Liz Truss before being replaced in the emergency by Jeremy Hunt, had set the markets on fire due to massive measures to support energy prices combined with total tax cuts, not quantified or financed.

Long-term UK government bond rates had risen sharply, dragging mortgage rates in its wake. In addition, the Bank of England continued to tighten its policy rate in early November, which also contributed to a rise in mortgage rates.

The latter rose to more than 6% in early October before falling slightly since Jeremy Hunt canceled almost all of the Kwasi Kwarteng plan. Zoopla expects mortgage interest rates to be around 5% in early 2023.

On the way to lower prices in 2023

The year-on-year increase in house sale prices in the UK slowed to 7.8%, the slowest rate of increase in a year, according to the Zoopla survey.

Experts on the specialist site, and more generally those in the sector, expect a decline in stone prices next year, especially as the UK economy is already in recession, according to Jeremy Hunt and the UK Budget Office OBR. The Bank of England also predicts a recession next year in the country, as does the OECD.

“The housing market is moving from a situation where demand and prices show unsustainable long-term strength to a more balanced market, despite financing problems for buyers dependent on a mortgage and in light of the economic outlook for 2023”, Zoopla comments.

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