Base rate apprehension sees house prices slip in May: Nationwide

Average house prices edged down slightly in May, slipping by 0.1% against April's figures according to this morning's data released by Nationwide.

Related topics:  Property,  House Prices,  Nationwide
Property | Reporter
1st June 2023
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"While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks"

Continued uncertainty in the market, rising rates and the possibility of them hitting a much higher peak than originally indicated have seen sustained pressure on buyers who are growing increasingly wary, causing prices to fluctuate. Following the slight dip in May, Nationwide data shows that the price of a typical home now stands at £260,736 (non-seasonally adjusted.)

Robert Gardner, Nationwide's Chief Economist, comments: “Following tentative signs of improvement in April, annual house price growth softened again in May, falling back to -3.4% (from -2.7% in April). However, this largely reflects base effects with prices broadly flat over the month after taking account of seasonal effects. Average prices remain 4% below their August 2022 peak.

“Recent Bank of England data had shown some signs of recovery in housing market activity, although the number of mortgages approved for house purchase in March was still around 20% below pre-pandemic levels.

“Moreover, headwinds to the housing market look set to strengthen in the near term. While consumer price inflation did slow in April, it was a much smaller decline than most analysts had expected.

"As a result, investors’ expectations for the future path of Bank Rate increased noticeably in late May, suggesting it could peak at c5.5%, well above the c4.5% peak that was priced in around late March. Furthermore, rates are also projected to remain higher for longer

“If maintained, this is likely to exert renewed upward pressure on mortgage rates, which had been trending down after spiking in the wake of the mini-Budget in September last year

Nevertheless, in our view, a relatively soft landing remains the most likely outcome since labour market conditions remain solid and household balance sheets appear in relatively good shape.

“While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks.”

Matt Thompson, head of sales at Chestertons, says: “May was a positive month for sellers as we witnessed an evident increase in buyer enquiries and actual offers being made.

"This boost in activity has been the avalanche effect of the month of March marking the beginning of Spring, which is known as the busiest season and sees more house hunters entering the market throughout April and May.

"Equally, we registered more sellers listing their homes for sale in May which provided buyers with a more varied selection of properties.

“In May, the property market was predominantly driven by buyers who were seeking a home rather than an investment. Areas such as Battersea Park, Islington and Camden have thereby been particularly sought-after as they offer a wide choice of property styles, nearby amenities, transport links and schools.”

Managing Director of Barrows and Forrester, James Forrester, commented:

“The market has continued to tread water where the current rate of house price growth is concerned and with a further hike to interest rates likely this month, we can expect this subdued performance to remain over the coming months.

"Those sitting on the fence in anticipation of a return to the pandemic glory days of double-digit price growth will be sitting for some time. However, the outlook is broadly positive and while a natural correction was always likely, we are yet to see any inkling of a market crash.”

Managing Director of House Buyer Bureau, Chris Hodgkinson, commented:

“Market performance so far this year has been inconsistent, to say the least, and this uncertainty is proving problematic for the nation’s homebuyers and sellers who continue to tussle when negotiating on price.

"The consequence of this back and forth is a more protracted transaction timeline and a greater threat of sales falling through. That said, buyer activity is building and while the current landscape is certainly more difficult, those who are able to negotiate it are still securing a good price for their home.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: "With inflation falling, but not as much as forecast, markets are now pricing base rate to peak at 5.5 per cent. Subsequent volatility in swap rates, which underpin the pricing of fixed-rate mortgages, means the latter are being pulled at short notice and either withdrawn completely or returning at significantly higher rates.

"Borrowers should not panic but seek advice from a whole-of-market broker and book a rate in advance of when they need it if they are worried. If rates fall by the time you come to take out your mortgage, you should be able to opt for a cheaper one."

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