"Buyers who are now entering the market are particularly careful about their budget and factor in any future rate hikes as well as the cost of living"
- Matt Thompson - Chestertons
The latest data released by Nationwide this morning has revealed that the average price for a typical home fell from £259,153 in August to £257,808 in September. All regions recorded annual house price falls in Q3 with the South West seeing the worst performance, where prices have seen a year-on-year fall of 6.3%.
Market remains weak
Robert Gardner, Nationwide's Chief Economist said that just 45,400 mortgages were approved for house purchase in August, down 30% against the monthly average prevailing in 2019 before the pandemic struck.
However, the lender noted that the relatively subdued picture is not surprising given the more challenging picture for housing affordability.
Rober Gardener explained: "Someone earning an average income and purchasing the typical first-time buyer home with a 20% deposit would spend 38% of their take-home pay on their monthly mortgage payment – well above the long-run average of 29%.
“However, investors have marked down their expectations for the future path of Bank Rate in recent months amid signs that underlying inflation pressures in the UK economy are finally easing, and with labour market conditions softening.
"This in turn has put downward pressure on longer-term interest rates which underpin fixed-rate mortgage pricing. If sustained, this will ease some of the pressure on those remortgaging or looking to buy a home.
“Nevertheless, with Bank Rate not expected to decline significantly in the years ahead, borrowing costs are unlikely to return to the historic lows seen in the aftermath of the pandemic.
"Instead, it appears more likely that a combination of solid income growth together with modestly lower house prices and mortgage rates will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim."
All regions saw annual price falls in Q3
“Our regional house price indices are produced quarterly with data for Q3 (three months to September) showing annual price declines in all regions.
“The South West was the weakest performing region, with prices down 6.3% year on year, while Northern Ireland remained the best-performing region, with a modest 1.8% fall.
“Wales saw a sharp slowing in the annual rate of change to -5.4%, from -1.4% last quarter. While Scotland also saw a slowing in annual house price growth to -4.2%, from -1.5% in Q2.
“Across northern England (which comprises North, North West, Yorkshire & The Humber, East Midlands and West Midlands), prices were down 3.9% compared with Q3 2022. The North was the strongest performing northern region, with the annual rate of change improving from -3.3% to -2.0%, while the East Midlands was the weakest, with a 5.5% decline.
“Meanwhile southern England (South West, Outer South East, Outer Metropolitan, London and East Anglia) saw a 4.8% year-on-year fall. London was the best performing southern region, although still saw a 3.8% annual decline.”
Matt Thompson, head of sales at Chestertons, says: “Since the Bank of England’s announcement of interest rates remaining at 5.25% for the time being, we have seen a positive response from buyers in September who felt more secure to make financial decisions and resume their property search.
"Understandably, buyers who are now entering the market are particularly careful about their budget and factor in any future rate hikes as well as the cost of living. As demand for properties in the capital continues to outstrip supply, the market remains competitive.”
Tom Bill, head of UK residential research at Knight Frank says: “Fourteen consecutive rate rises have taken their toll on the property market but more stable lending conditions means buyers and sellers will be able to catch their breath.
"The number of people rolling off more favourable fixed-rate mortgages won’t fall in 2024, but sentiment should improve as volatility reduces. We think most of the UK’s house price correction will happen this year and modest single-digit annual growth will return after the next general election.”
Anna Clare Harper, CEO of GreenResi, says: "Softer pricing is unsurprising as higher interest rates have a much larger impact on affordability than asking prices. Last year’s pricing levels, which were buoyed up artificially by policies such as the stamp duty holiday and very low-interest rates, are no longer achievable.
"However, unlike commercial property such as offices, which in many cases have fallen in value by 20-30%, it’s unlikely that we experience a full house price crash. Firstly, this is due to the ‘necessity’ of housing. We all need a roof over our heads. Secondly, a large proportion of the market is owned outright, and they are unaffected by mortgage interest rates. For this reason, fears of a ‘house price crash’ are unrealistic.
"The challenge is less around house prices and more around the shortage of rental homes, which are in ever greater demand due to reduced affordability of buying a home. The relative stability of house prices combined with a growing supply shortage in rental is encouraging new institutional investment, and this is essential for ‘Generation Rent’."
Iain McKenzie, CEO of The Guild of Property Professionals, says: “It’s been a year since the impact of the so-called ‘Mini Budget’ began to unfold, and the property industry is still feeling the effects.
“Today’s figures indicate that affordability is still playing on people’s minds when it comes to getting their foot on the ladder. First-time buyers are hesitant to take on a mortgage they can’t afford.
“Until confidence is fully restored, we should expect house price growth to remain flat, as sellers are forced to be more flexible on their asking price and buyers struggle to put funds aside for their deposit.
“Cash remains king for buyers that don’t have to rely on a mortgage being approved. A year of high inflation and interest rates has caused borrowing to become difficult.
“The demand for good quality housing is keeping prices from dropping sharply. The inflated rental market means that those looking to get on the ladder are still as eager as ever. Another fall in house prices will be welcome news to many potential buyers.”