House prices continue to fall but “soft landing” still possible

Annual house price growth fell by nearly 4% in the 12 months to July, according to Nationwide, with higher mortgage rates continuing to affect affordability.

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David Hollingworth
August 14, 2023
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Annual house price growth fell by nearly 4% in the 12 months to July, according to Nationwide, with higher mortgage rates continuing to affect affordability. Prices fell 0.2% in July, the building society’s House Price Index showed, taking the average house price to £260,828, with annual growth at -3.8%, compared to -3.5% in June, the biggest annual decline seen since July 2009. The price of a typical home in the UK is now 4.5% below the peak seen in August 2022. However, despite lower prices, affordability remains stretched for those buying a property with a mortgage, with markets anticipating further increases in the base rate in coming months to help curb inflation. Robert Gardner, chief economist at Nationwide said: “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). “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.”. However, lower than expected inflation numbers in July have helped ease pressures marginally, with a number of lenders reducing their mortgage rates in recent weeks. This is despite the fact the Bank of England this month raised the base rate by a quarter of a percentage point from 5% to 5.25%, the fourteenth consecutive rise since December 2021. Mr Gardner said: “A relatively soft landing is still achievable, providing broader economic conditions evolve in line with our (and most other forecasters) expectations. “In particular, unemployment is expected to remain low (below 5%), and the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs, given the high proportion on fixed rates, and where affordability testing should ensure that those needing to refinance can afford the higher payments.”

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