"House prices are still high compared to household incomes, making raising a deposit challenging for prospective buyers, especially given the intense cost of living pressures in recent years."
- Robert Gardner - Nationwide
Annual house price growth slowed to 2.1% in August, down from 2.4% in July, according to Nationwide’s latest house price index. Monthly prices slipped 0.1% after seasonal adjustment, leaving the average UK home valued at £271,079.
“August saw a slight softening in the rate of annual house price growth to 2.1%, from 2.4% in July. Prices dipped by 0.1% month on month, after taking account of seasonal effects,” explained Robert Gardner, Nationwide’s chief economist. “The relatively subdued pace of house price growth is perhaps understandable, given that affordability remains stretched relative to long-term norms. House prices are still high compared to household incomes, making raising a deposit challenging for prospective buyers, especially given the intense cost of living pressures in recent years.”
Gardner noted that borrowing costs remain a significant obstacle. “Combined with the fact that mortgage costs are more than three times the levels prevailing in the wake of the pandemic, this means that the cost of servicing a mortgage is also a barrier for many,” he said. “Indeed, an average earner buying the typical first-time buyer property with a 20% deposit faces a monthly mortgage payment equivalent to around 35% of their take-home pay, well above the long-run average of 30%.”
Looking ahead, Gardner pointed to signs of gradual improvement. “Affordability should continue to improve gradually if income growth continues to outpace house price growth as we expect,” he commented. “Borrowing costs are likely to moderate a little further if Bank Rate is lowered again in the coming quarters. This should support buyer demand, especially since household balance sheets are strong and labour market conditions are expected to remain solid.”
Housing stock trends
Nationwide’s research highlights small but notable shifts in property sizes over the past decade. “In our recent research report on the housing stock, we noted that typical property sizes have increased slightly over the last decade. Since 2013, the average floor area has increased from 95.3m2 to 96.2m2,” Gardner said. “The table (above right) shows the increases across different property types. The largest increase has been in terraced houses, where the average floor area is 3.6% bigger than in 2013. But the average size of flat, the smallest property type, is now 1.7% smaller than 10 years ago at 60.3m2.”
The report also examined differences across tenures. “Reflecting the composition of the stock, the owner-occupier sector has the highest average floor area at 112m2. The average floor area in the private and social rented sectors is smaller at 76m2 and 65m2 respectively, due to greater concentration of flats,” he explained.
Across Europe, England’s homes tend to be more modest in size. “Dwellings in England tend to be a little smaller on average compared with some of our European neighbours. The average dwelling size in the EU is 103m2, although there is considerable variation amongst nations. The Netherlands, Norway and Belgium stand out as having the most spacious properties (on average), while typical properties tend to be much smaller in Eastern European nations,” Gardner observed.
Underoccupation was another key finding. “87% of owner-occupied properties in England have at least one spare bedroom. Remarkably, 53% are classified as being ‘underoccupied’, that is to say they have two or more spare bedrooms,” Gardner noted. “The proportion of underoccupied properties has been trending up over time. By contrast, in the private rented sector, only 16% of properties are ‘underoccupied’.”
Industry reaction
Tom Bill, head of UK residential research at Knight Frank, said, “House prices have drifted lower since March as the market digests higher rates of stamp duty and supply continues to outstrip demand. Steady mortgage rates mean transaction numbers have improved over that time, but the recent property tax speculation risks sending both sales and prices lower as buyers and sellers deal with pre-Budget uncertainty for the second year in a row.”
Nathan Emerson, CEO at Propertymark, comments, “It is encouraging to see that house prices remain resilient at a time when the housing market has seen turbulence, very much influenced by the current economic backdrop.
“There are, however, many positive factors to reflect upon: we have witnessed a drop in the number of fall-throughs, a trend that demonstrates an uplift in the number of property transactions completed, and the number of overall listings reaching an all-time high.
“There are challenges ahead, however, such as increasing the supply of new sustainable homes, providing assistance to first-time buyers, and for lenders, ensuring that the latest drop in interest rates translates into more affordable mortgage products.”
Ryan Etchells, Chief Commercial Officer at Together, said, "Another fall in house prices may ring alarm bells, however there are still opportunities out there.
“This prolonged period of subdued activity can be attributed to various factors. Primarily, a difficult economy is stopping potential buyers from following through on their property plans. This is compounded by relatively high interest rates.
“While the Bank of England’s latest base rate cut may prompt mortgage lenders to drop their rates, swap rates, which impact fixed-term borrowing, remain volatile. Stubborn inflation and a weak jobs market will also subdue the housing market as potential buyers feel the pressure on their purse strings. To compound these issues, rumoured tax changes, including a potential property tax on houses worth over £500,000 - which could be announced in the autumn budget - may also put pressure on the market due to unknown secondary impacts creating uncertainty.
“Despite these headwinds, it’s clear that there remain many opportunities for aspiring homebuyers and landlords looking to invest, and those keen to seize an opportunity and move forward with their property plans can consider the wide range of financial products available, like Shared Ownership mortgages, specialist buy-to-let mortgages or bridging loans for fast, flexible finance.”
Marc von Grundherr, Director of Benham and Reeves, commented, “August’s marginal dip is no surprise, with the school holidays always proving disruptive for buyers and sellers. However, this is nothing more than a seasonal summer slump as our plans to move take a backseat in favour of holidays and longer days spent in the sun with family and friends.
"Now that September has arrived it brings with it a greater degree of normality where our day to day routines are concerned and so we should see momentum return quickly, with greater consistency in both market activity and house price growth.”
Verona Frankish, CEO of Yopa, said, “The market may have paused over the summer, but the annual picture remains one of growth and resilience.
"With the holiday season behind us, attention now turns to the final run up to Christmas, which is traditionally one of the busiest periods of the year and one of the hard deadlines many buyers and sellers set for their completion data.
"The added motivation of moving before the festive season, combined with improving mortgage affordability, should help drive a strong finish to the year for the housing market.”
