House prices fall further into negative territory: Nationwide

Annual house price 'growth' edged further into negative territory in July at -3.8%, down from -3.5% in June to the lowest level since July 2009, according to the latest Nationwide house price index.

July saw house prices fall 0.2% month-on-month and, as a result, the price of a typical home is now 4.5% below the August 2022 peak.

Robert Gardner, Nationwide's chief economist, said: “Investors’ views about the likely path of UK interest rates have been volatile in recent months, with the projected Bank Rate peak fluctuating between 5% in mid-May and 6.5% in early July. There has been a slight tempering of expectations in recent weeks but longer-term interest rates, which underpin mortgage pricing, remain elevated.

“As a result, housing affordability remains stretched for those looking to buy a home with a mortgage. For example, 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.

“This challenging affordability picture helps to explain why housing market activity has been subdued in recent months. There were 86,000 completed housing transactions in June, 15% below the levels prevailing the same time last year and around 10% below pre-pandemic levels. More timely mortgage approval data showed a slight increase in activity in June, though most of these applications will pre-date the more recent rise in longer term interest rates. Moreover, activity is still c20% below 2019 levels.

“Nevertheless, 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.

“While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks.”

Nicky Stevenson, Managing director at national estate agent group Fine & Country, commented: “Affordability pressures are weakening house price growth, but demand remains undimmed, especially for properties that are sensibly priced.

“Mortgage approvals in June reached their highest level since October 2022, a month impacted by soaring interest rates after the mini-Budget.

“Since then, borrowers have got used to the higher interest rate environment. A potential slowdown in Bank of England rate hikes as inflation falls will restore even more confidence.

“The key for sellers is to price their property right from the outset — those that do are still seeing strong interest from buyers and are selling much more quickly.

“Buyers are also looking at properties where there is potential scope for negotiation, and the prospect of securing a good price on their next home is still encouraging them to the market.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, added: "Until we see a consistent decline in mortgage pricing, buyers relying on mortgages are likely to be more price sensitive in coming months on the back of affordability concerns.

"With another 25 basis points interest rate rise expected from the Bank of England later this week, we are not out of the woods just yet when it comes to rising mortgage costs.

"However, a few lenders, including HSBC, Barclays and Nationwide, have reduced their fixed-rate mortgage pricing on the back of better-than-expected inflation news. This has led to a calming of Swap rates, which underpin the pricing of fixed-rate mortgages, after weeks of considerable volatility."