"If we are not at the bottom of the current slowdown in the UK housing market, we must be close"
- Tom Bill - Knight Frank
The latest figures released by Nationwide have revealed a housing market that is continuing to fight until the end of the year, with average house prices showing a 0.2% rise in November, the third consecutive monthly rise.
Robert Gardner, Nationwide's Chief Economist, comments: “UK house prices rose by 0.2% in November, after taking account of seasonal effects. This was the third successive monthly increase and resulted in an improvement in the annual rate of house price growth from -3.3% in October, to -2.0%. While this remains weak, it is the strongest outturn for nine months.
Shift in interest rate expectations eases affordability pressures
“There has been a significant change in market expectations for the future path of Bank Rate in recent months which, if sustained, could provide much-needed support for housing market activity.
“In mid-August, investors had expected the Bank of England to raise rates to a peak of around 6% and lower them only modestly (to c.4%) over the next five years. By the end of November, this had shifted to a view that rates have now peaked (at 5.25%) and that they will be lowered to around 3.5% in the years ahead.
“These shifts are important as they have led to a decline in the longer-term interest rates (swap rates) that underpin fixed-rate mortgage pricing, as shown below. If sustained, this will help to ease the affordability pressures that have been stifling housing market activity in recent quarters, where the number of mortgage approvals for house purchases has been running at c.30% below pre-pandemic levels.
“While mortgage rates are unlikely to return to the lows prevailing in the aftermath of the pandemic, modestly lower borrowing costs, together with solid rates of income growth and weak/negative house price growth, should help underpin a modest rise in activity in the quarters ahead.
“Nevertheless, a rapid rebound still appears unlikely. Cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, but consumer confidence remains weak, and surveyors continue to report subdued levels of new buyer enquiries.
He concluded: “Moreover, while markets are projecting that the next Bank Rate move will be down, there are still upward risks to interest rates. Inflation is declining, but measures of domestic price pressures remain far too high.
“Policymakers have cautioned that it is too early to be talking about interest rate cuts. Indeed, three of the nine members of the Bank of England’s Monetary Policy Committee voted to increase Bank Rate at its meeting in early November, though the remaining six preferred to hold at 5.25% for the time being.”
Tom Bill, head of UK residential research at Knight Frank says: “If we are not at the bottom of the current slowdown in the UK housing market, we must be close.
"Price indices are potentially more volatile due to low transaction numbers but sentiment has improved in recent weeks as the worst of the economic data moves behind us. Inflation is below 5%, the best five-year fixed-rate mortgage has fallen to less than 4.5% this week and speculation is focussed on the timing of the next rate cut not the size of the next rise.
"After a flat autumn, the UK housing market should see a spring bounce in 2024 provided a general election is not called in the first half of next year.”
Iain McKenzie, CEO of The Guild of Property Professionals, says: “The property market managed to buck sluggish economic trends last month, with house prices showing a slight rise.
“It’s an important reminder that property prices may fluctuate through challenging times but growth is never far away.
“The recent dip may have created opportunities for buyers that previously felt priced out of owning their own home.
“Homeowners may worry that now is not the best time to sell and that their property could lose value, but it’s important to take a long-term perspective on the matter.
“With cost-of-living pressures alleviating and inflation cooling, consumer confidence shows signs of improving in the coming year, suggesting a return to steady growth in the property market in 2024.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: "These figures confirm what we’ve seen in our offices – the market is still baring its teeth. Despite a 15-year high in base rate and continuing inflation, buyers are showing there is little chance of a correction, although sales are taking longer and prices are softening. Strong employment also supports activity.
"We don’t expect to see much change in the months ahead but a gradual improvement as optimism always seems to become more apparent at the beginning of the year."
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: "While interest rates appear to have peaked, those hoping base rate will move swiftly downwards again to the rock-bottom levels of the recent past are likely to be disappointed. Pricing is higher than borrowers have grown used to over the years, meaning those buyers relying on mortgages are more price-sensitive on the back of ongoing affordability concerns.
"The direction of travel for new mortgage rates is downwards, with a number of lenders making reductions this past week and bringing some early Christmas cheer to borrowers. With two and five-year fixes available from below 4.5 per cent, we may be in a higher interest rate environment but rates are becoming more palatable."
Nathan Emerson, CEO of Propertymark, comments on the Nationwide House Price Index for November 2023:
“There is no denying 2023 has been a very uneven year for the UK housing market. We have seen the most ‘unperfect storm’ of high inflation and high-interest rates giving many households an unpresented and near unworkable scenario each month.
While there are indications a turning point may be on the horizon, the dust needs to fully settle and we must remain prudent. Andrew Bailey, Bank of England Governor, recently suggested there will be no quick drops in base rate for the foreseeable future to keep inflation in check – so ultimately the pressure will remain on many households for a while longer yet.
Propertymark remains optimistic the entire UK housing market will steadily gain traction, but it’s unlikely to be a quick process.”
