House prices slump as Iran war and interest rates hit demand
House prices slumped in July after the Iran war and higher interest rates squeezed demand and triggered a slowdown in sales.
Annual house price growth slowed to 1.8 last month, down from 2.2 per cent the prior month.
Month on month, average house prices remained broadly flat, rising by just £58 to reach £277,542, up from £277, 484 in June.
Uncertainty caused by the Iran war coupled with soaring energy prices rocked consumer confidence and market sentiment. The Bank of England’s decision not to lower interest rates has also impacted the market, after the conflict ended expectations of lower interest rates at the start of the year.
Robert Gardner, chief economist at Nationwide, said: “Geopolitical tensions remain high, with the conflict between Iran and the US again exerting upward pressure on energy prices and market interest rates in recent weeks.
“Financial market expectations for the future path of Bank Rate have been volatile, reflecting shifting views about the inflationary implications of events at home and abroad.”
Rates decisions
But Gardner said that cooling inflation and slowing wage growth can give the central bank “more breathing space” to assess whether further rate hikes are needed next month.
“The Monetary Policy Committee can take some comfort from the fact that consumer price inflation declined further in June,” he said.
Nathan Emerson, chief executive of Propertymark, said: “Yesterday’s interest rate decision, with rates remaining unchanged, provides greater certainty for borrowers and allows prospective buyers to plan with a clearer understanding of future mortgage costs.”
Burnham’s move
The industry is now waiting to see if the new prime minister Andy Burnham will overhaul taxes on the UK’s housing market.
He confirmed there are no immediate plans to change both stamp duty or council tax but is yet to provide greater “certainty” for buyers.
Emerson urged Burnham to provide “clarity around taxation, housing supply and long-term reforms” to reinforce confidence.
Tom Bill, head of UK residential research at Knight Frank said Burnham’s decision to rule out raising stamp duty may have been an attempt to avoid speculation distorting the market.
Bill said: “A combination of higher mortgage costs and uncertainty around property taxation has kept demand in check this summer.
“The slowdown is presumably why Andy Burnham needed to rule out replacing stamp duty with a land value tax this week although the annual game of ‘guess the tax rise’ is not over for the property market, after the Prime Minister repeated his predecessor’s line about ‘difficult decisions’ in the Budget.”