Annual house price growth slows further to 1.1%: Nationwide

The start of 2023 saw a further slowing in annual house price growth to 1.1%, from 2.8% in December, according to the latest Nationwide house price index.

January also saw a further monthly price fall of 0.6%, which left prices 3.2% lower than their August peak.

Robert Gardner, Nationwide's chief economist, said: “There are some encouraging signs that mortgage rates are normalising, but it is too early to tell whether activity in the housing market has started to recover. The fall in house purchase approvals in December reported by the Bank of England largely reflects the sharp decline in mortgage applications following the mini-Budget.

“It will be hard for the market to regain much momentum in the near term as economic headwinds are set to remain strong, with real earnings likely to fall further and the labour market widely projected to weaken as the economy shrinks.

“As we highlighted in our recent affordability report, the biggest change in terms of housing affordability for potential buyers over the last year has been the rise in the cost of servicing the typical mortgage as a result of the increase in mortgage rates.

“Should recent reductions in mortgage rates continue, this should help improve the affordability position for potential buyers, albeit modestly, as will solid rates of income growth (wage growth is currently running at around 7% in the private sector), especially if combined with weak or negative house price growth.

“Nevertheless, the overall affordability situation looks set to remain challenging in the near term. Saving for a deposit is proving a struggle for many given the rising cost of living, especially those in the private rented sector where rents have been rising at their strongest pace on record (on data extending back to 2005 for England).

“High house prices relative to earnings mean deposit requirements remain a major challenge. Moreover, the Help To Buy Equity Loan scheme that helped those with a smaller deposit buy a new build property is due to end in March. However, the government’s mortgage guarantee scheme, which helps to secure the availability and lower the cost of higher loan-to-value mortgages, has been extended until the end of 2023."

James Briggs, head of personal finance intermediary sales at Together, commented: “House prices fell again in January, dipping from 2.8% to 1.1% in a clear sign we’re edging closer to a recessionary market. Even with prices falling and possible opportunities for first-time buyers to snap up relatively cheaper deals, the looming Bank of England base rate decision this week could trigger further belt tightening in the short term.

“But that’s not to say overall activity will grind to a halt. Latest industry figures showing second charge lending increased year-on-year by 45.3% to £1.71 billion in 20221, in a sign that while new home moves may slow down, there is a clear rise in people using this route to raise capital and reinvest in their current homes by making improvements there, rather than moving on.

“In addition, for new buyers looking to take advantage of lower house prices, there are a number of different schemes available to explore, such as shared ownership and right-to-buy.”

Jeremy Leaf, north London estate agent and former RICS residential chairman, said: "It was inevitable that house prices would continue slowing after such a strong run for most of last year but these respected numbers don’t tell the full story from the high street.

"They reflect activity at the end of last year when business was slowing quite rapidly after the mini-Budget shock but was still being supported by stock shortages.

"The fizz has certainly left the market, leaving behind more serious needs-driven as opposed to discretionary buyers, coming to terms with more stable mortgage rates and greater balance between supply and demand.

"Looking forward, the outlook for house prices remains fairly steady with no expectation of any dramatic change."

Nicky Stevenson, managing director at national estate agent group Fine & Country, added: “Subdued buyer demand is the strongest factor dampening house price growth, though average prices remain higher than they were a year ago, and 12% higher than they were in January 2021.

“Although buyers have returned to the market in greater numbers since the shocks of the mini Budget last autumn, the Bank of England saw home loan approvals ease for the fourth consecutive month in December.

“A month without a base rate rise – when it finally comes – could be enough to produce a quick turnaround in home-buyer numbers.

“As the Bank of England weighs up whether to make a tenth successive hike in interest rates tomorrow, buyers will be hoping lenders have factored another rise into their products already. If mortgage rates remain stable, this could be enough to convince many people to resume their property search.”