Annual house price growth edged further into negative territory in July. According to the latest Nationwide House Price Index, July saw house prices fall 0.2% month on month and annual rate of house price growth remained negative at -3.8%, down from -3.5% in June
Commenting on the figures, Nationwide’s chief economist Robert Gardner says:“Investors’ views about the likely path of UK interest rates have been volatile in recent months, with the projected Bank Rate peak fluctuating between 5% in mid-May and 6.5% in early July.
“There has been a slight tempering of expectations in recent weeks but longer-term interest rates, which underpin mortgage pricing, remain elevated.
“As a result, housing affordability remains stretched for those looking to buy a home with a mortgage. For 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 stresses that 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.
Gardner believes this challenging affordability picture helps to explain why housing market activity has been subdued in recent months. “There were 86,000 completed housing transactions in June, 15% below the levels prevailing the same time last year and around 10% below pre-pandemic levels”.
Together’s head of personal finance intermediary sales James Briggs believes that while the continued downward spiral in house prices last month doesn’t ease fears of a crash – this scenario is still unlikely.
“Affordability is still one of the greatest challenges facing borrowers today. However, we are seeing a trend across the specialist lending landscape reacting to an easing swaps market by reducing rates on residential mortgages. It’s these lenders who can take a more individual approach, taking into account clients’ actual incomes and expenditures who will be able to seize opportunities in a softer market”.
In addition Briggs insists there are plenty of opportunities for those who can help first-time buyers, and he sees more demand for renters to purchase properties directly from their landlord to kickstart their homeownership ambitions.
He adds: “BTL is also in an interesting space. Current BTL investors are having to carefully weigh up mortgage costs against achievable and affordable rent. And, as BTL landlords roll off fixed rate deals over the next 12 months, we may see investors releasing these properties to the market – offering even further opportunities for potential homeowners.”
GreenResi chief executive Anna Clare Harper says this house price correction reflects reduced demand and the urgency of supply.
“On demand, the combination of reduced stamp duty and lower interest rates through Covid boosted people’s ability to pay higher prices. Now, higher interest rates, and the end of the stamp duty holiday mean people are no longer willing and able to pay higher house prices”.
“On supply, higher interest rates also influence sales prices. For approximately 2 million property owners with variable-rate mortgages or fixed-rate terms coming to an end this year, housing costs are increasing by 2 to 3 times. For those who can’t afford this, a sale at any price is needed, bringing down the average house price”.
MT Finance director Tomer Aboody says the declining number of transactions, combined with negativity in the market, is pushing down property prices, a trend which has been evident for several months.
“The constant interest rate increases are making affordability difficult for buyers, as they try to make moves, with many waiting until some stability comes in”.
He adds: “With some better news on inflation recently, it will be interesting to see whether the Bank of England postpones the next rate rise or goes for a slight increase, giving the market some breathing space to adjust.”
