Cost of living – latest: House prices see biggest drop for 14 years – as experts predict what happens next


Cost of living - latest: House prices see biggest drop for 14 years - as experts predict what happens next

Key points
    House prices down 4.5% since peak last AugustFive people who work in housing market predict what happens nextTax on wines and spirits increases from today, but some good news if you’re going to the pub for a pint6.5% pay rise accepted by teaching unionWill interest rates rise this week and, if so, by how much? Economist predictionsUse our spending calculator to see which prices have gone up or downLive reporting by Ollie Cooper 

11:47:06 Rates rise on fixed mortgage deals

There’s bad news for anyone looking to take out a new mortgage today, with rates on fixed deals rising once again. 

The average two-year fixed residential mortgage rate is now 6.85%, according to Moneyfacts – up from 6.81% yesterday.

For five-year fixes, the rate rose from 6.34% yesterday to 6.37% today.

There is slightly more choice, with 5,056 residential mortgage products currently available – 27 more than yesterday.

And if you are interested in a tracker, it puts the average two-year rate at 6.02% – unchanged from the start of the week.

Better news for savers

For savers who can afford to put money away for at least a year, the average rate is 5.21%, Moneyfacts said – up from 5.19% yesterday.

The savings rate has also risen for easy access accounts, from 2.78% yesterday to 2.81% today.

For cash ISAs, it’s 5% for one-year fixed accounts – up from 4.98% – while the easy access ISA rate has stayed at 2.84%.

11:00:55 Watch: Alcohol duty on the rise

As we’ve already discussed earlier this morning, the government has begun taxing all alcoholic drinks based on their alcohol by volume (ABV) from today.

Wine and spirit drinkers will have to pay more from today as alcohol taxes rise.

The shake-up aims to encourage drinkers to cut back by taxing all alcohol based on its strength, rather than the previous categories of wine, beer, spirits and ciders.

This video outlines the changes…

It shows an increase of duty tax of 44p on a bottle of wine – although, when combined with VAT, the real increase per bottle will be 53p, the Wine and Spirit Trade Association (WSTA) said.

Beer drinkers who purchase from the shop can expect to pay around 4p more in duty tax, but pubs’ pints are currently exempt from this rise – as Boris Johnson and now Rishi Sunak have both pledged to protect the price of the pint.

Vodka, too, takes a hit – you can expect to pay 76p more for a 50cl bottle of the spirit.

But good news for sparkling wine drinkers, who will now pay 19p less in tax thank before. 

10:18:44 How we are coping (or not) with increased housing costs – as top three issues facing Britons revealed

We have some stats from the Office for National Statistics which illustrate how people are coping – or not – with housing costs.

According to the latest ONS poll on public opinions and social trends, 40% of adults said they were finding it “very” or “somewhat” difficult to afford rent or mortgage payments between 12 and 23 July.

This was up from 31% in July last year.

And among mortgaged homeowners and tenants, 45% reported that their payments had increased in the past six months.

Asked about the most important issues facing the UK today, the cost of living crisis was the most commonly reported at 92%, followed by the NHS (85%) and the economy (78%).

09:38:28 HSBC profits more than double | Domino’s and Greggs also post profit increases

One of the world’s biggest banks has seen its profits more than double when compared with the same period last year – thanks to high interest rates in the UK and across the rest of the globe. 

The company recorded pre-tax profits of £16.9bn for the first half of this year, up from £6.6bn a year ago. 

Revenue soared by 51% to £28.8bn thanks to higher interest rates. 

The bank said it would pay dividends of 10 cents a share, on top of the same payout it gave shareholders in the first quarter. 

Elsewhere, food giants Domino’s and Greggs have both posted strong numbers for the first half of 2023.

Domino’s has seen a revenue increase of 19.6% thanks to the rapid opening of a number of shops, the pass-through of food costs and a general increase in orders. 

Greggs meanwhile, are flying. Sales have jumped 21.5%, and underlying profit before tax is up by 14.2% to £63.7m. 

“With consumers remaining under pressure, we continue to offer exceptional value, which is reflected in our performance and growing market share,” chief executive Roisin Currie said.

“In the period we continued to open further new shops, extended trading hours into the evening and saw increased participation in the Greggs app.”

09:10:58 Five people who work in housing market predict what happens next

We have more reaction now on the Nationwide House Price Index – which shows prices have fallen 4.5% since their peak last August.

This won’t be a surprise to many – but something we all want to know is: what happens next?

Here’s the view of five professionals…

Brexit, limited supply and construction costs causing issues – but this should help keep prices up

Jonathan Gordon, director of international real estate specialists at IP Global, says: “The supply of property in the UK is limited and further construction is becoming increasingly difficult to achieve, which will support prices. 

“There is a backlog on construction due to numerous factors including fewer construction workers since Brexit, the COVID-19 backlog and the political upheaval in Eastern Europe, driving up raw material costs and causing supply chain issues. 

“All of this means a house price correction is more likely than a collapse.”

Scary headlines – but this actually helps first-time buyers

Kundan Bhaduri, director of London-based property developer and portfolio landlord for The Kushman Group, says: “This decline is helping improve affordability for first-time buyers.

“This slowdown in house price growth was a long time coming and is a perfect opportunity to rebalance the market and prevent a potential bubble. 

“While a fall in house prices grabs headlines, we see this as a perfect buying opportunity and are capitalising on the incredible value that is now available in the market.”

Inflation is key

Joe Garner, managing director of property consultants Joe Garner Consulting, says: “Only once inflation has been tamed will we see housing markets recover. 2009 was a notorious year so comparisons with it are concerning.”

Riz Malik, director of Southend-on-Sea-based independent mortgage broker R3 Mortgages, agrees: “Should there be a significant decrease in inflation, it may pave the way for just one additional rate hike this year, which could lead to further improvements in mortgage pricing. 

“That will provide a degree of support to prices moving forward. But for now it’s very quiet out there.”

Some estate agents aren’t helping things

Jamie Lennox, director at Norwich-based mortgage broker Dimora Mortgages, says: “Locally, in Norfolk, we are seeing sizeable reductions in asking prices. 

“This isn’t helped in many situations by agents valuing properties like it’s 2021 and buyers being cautious like it’s 2008. 

“Until inflation is firmly under control, I struggle to see housing market conditions improving.”

08:28:44 BP profits tumble

BP has recorded a big drop in profits in the first half of its financial year, as energy prices fell from the highs seen after Russia’s invasion of Ukraine.

The oil and gas giant reported net profits of just over $2.5bn (£2bn) for the three months to the end of June.

It’s half the $5bn (£4bn) profit achieved in the preceding three months, the first quarter of 2023.

When compared with profits in the same period last year, the drop is even steeper – $8.45bn (£6.5bn) was recorded at that time.

A fall in profits had been expected by analysts, but BP’s results were worse than expected.

Our business team has done a full write up in this story here…

08:10:39 ‘Optimism’ as food price inflation slows to lowest level this year

Food price inflation has slowed to its lowest level this year – as costs fall for staples such as oils, fats, fish, and breakfast cereals, research suggests.

However the rate of 13.4% – in the year up to July – still remains high.

But the British Retail Consortium (BRC), which compiled the figures with retail analysts NielsenIQ, said it was still the lowest level since December 2022 and represented “cause for optimism”.

Read the full story from our business team here…

07:58:53 Tax on wines and spirits increases from today, but some good news if you’re going to the pub for a pint

As we told you yesterday, wine and gin drinkers will have to shell out more from today as alcohol taxes rise.

The shake-up aims to encourage drinkers to cut back by taxing all alcohol based on its strength, rather than the previous categories of wine, beer, spirits and ciders.

The increase will see duty rise by 44p on a bottle of wine – something announced a few months ago in the budget.

When combined with VAT, the real increase per bottle will be 53p, the Wine and Spirit Trade Association (WSTA) said.

But the price of a pint should go down by 11p.

You can read the full story here…

07:52:01 House prices ‘will fall another 7%’ amid ‘collapse in demand’

While the Nationwide index (see post below) suggests a “soft landing” is still possible for the UK housing market, analysts at Capital Economics point to short and medium term pain to come.

They point to expectations that the Bank rate will hit between 5.5% and 6% and stay there until mid-2024.

“As a result, very stretched affordability will continue to dampen demand and there are signs that the number of homes on the market having been at very low levels during the pandemic.

“That’s likely to lead to a further 7% drop in house prices on top of the 4% decline to date.”

In the short term, Capital Economics says “house price falls are likely to gather pace over the coming months… Indeed, the collapse in demand in the RICS survey is consistent with rolling quarterly house price growth dropping”.

07:33:07 House prices down 4.5% since peak last August

The closely watched Nationwide House Price Index shows the biggest annual drop in prices for well over a decade.

Annual house price growth edged down to -3.8% in July – the weakest number since July 2009.

House prices peaked last August – average prices are down 4.5% since then, Nationwide says.

Other stats show a troubling picture, too.

There were 86,000 completed housing transactions in June, 15% below the same time last year and around 10% below pre-pandemic levels.

Nationwide says projections for peak Bank rate – currently just under 6%, forecast for the end of this year – mean “housing affordability remains stretched”.

The bank’s chief economist, Robert Gardner, offers a practical example…

“A prospective buyer, earning the average wage and looking to buy the typical first-time buyer property with a 20% deposit, would see monthly mortgage payments account for 43% of their take home pay (assuming a 6% mortgage rate),” he said.

“This is up from 32% a year ago and well above the long-run average of 29%. 

“Moreover, deposit requirements continue to present a high hurdle – with a 10% deposit equivalent to 55% of gross annual average income.”

This example explains the current “subdued” housing market, he says – but “a relatively soft landing”, as opposed to a hard crash, is “still achievable”.

This depends in “broader economic conditions evolv[ing] in line with our, and most other forecasters, expectations”. 

“In particular, unemployment is expected to remain low (below 5%), and the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs, given the high proportion on fixed rates, and where affordability testing should ensure that those needing to refinance can afford the higher payments.”

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