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Average house price falls 3.5% as mortgage rates keep climbing

The sharp increase in borrowing costs is likely to exert a significant drag on near term housing market activity, Nationwide Building Society said

Vicky Shaw
Friday 30 June 2023 12:05 BST
House prices fell by 3.5% annually in June, according to Nationwide Building Society (Gareth Fuller/PA)
House prices fell by 3.5% annually in June, according to Nationwide Building Society (Gareth Fuller/PA) (PA Archive)

House prices fell by 3.5% annually in June as interest rates soar to 6.37% for the average two-year fixed year mortgage deal, in the latest blow to homeowners.

The 3.5% fall follows a 3.4% annual decline in May as the sharp increase in mortgage rates fuelled by rising inflation is expected to inflict a “significant drag” on the housing market, Nationwide Building Society said.

Prices were fairly stable over the month, rising by a modest 0.1%, reversing a 0.1% month-on-month decline in May. The average UK house price in June was £262,239.

It comes as home sales plumted by 27% in May compared with the same month last year.

HM Revenue and Customs (HMRC) figures said the large fall was partly due to the higher number of bank holidays in May 2023, but also represents “the decline in general market conditions in recent months”.

Robert Gardner, Nationwide’s chief economist, said of the annual price fall: “Longer term interest rates, which underpin mortgage pricing, have increased sharply in recent months, in response to data indicating that underlying inflation in the UK economy is not moderating as fast as expected.

“This has prompted investors to expect the Bank of England to increase its policy rate further and for it to remain higher for longer.

“Longer term borrowing costs have risen to levels similar to those prevailing in the wake of the mini-budget last year, but this has yet to have the same negative impact on sentiment.

“For example, the number of mortgage applications has not yet declined and indicators of consumer confidence have continued to improve, though they remain below long run averages.

“The sharp increase in borrowing costs is likely to exert a significant drag on housing market activity in the near term.”

A 10% deposit on a typical first-time buyer home is equal to around 55% of gross annual income, Nationwide said.

More than four in 10 house sellers are having to shave more than 5% off the original asking price to achieve a sale, according to Zoopla (Gareth Fuller/PA) (PA Archive)

It added that, while this is down from the highs of 59% prevailing in late 2022, it is marginally above the levels prevailing before the financial crisis struck in 2007/8.

Mr Gardner added: “Moreover, despite the higher interest rates available to savers, the sharp rise in rents, together with continued high rates of inflation more generally is continuing to make it difficult for many prospective buyers to save for a deposit.”

He said: “A combination of healthy rates of income growth and modest price declines should improve affordability over time, especially if mortgage rates moderate.”

Mr Gardner said that for people coming off two-year fixed-rate mortgage deals, a new two-year deal could equate to an increase of £385 per month for a typical borrower.

Those coming off five-year deals face an increase equating to around £315 per month for a typical mortgage borrower, he said.

He said lenders will work with borrowers to provide assistance wherever possible.

Prices will come under growing pressure given how much higher mortgage costs are compared to 18 months ago and we expect a 10% decline, spread over this year and 2024

Tom Bill, Knight Frank

Nathan Emerson, CEO of property professionals’ body Propertymark, said: “Despite the current economic conditions, our members report only a slight dip in the number of buyers coming to the market when compared to last year when the sales market was in a frenzy. However, many are being more cautious before deciding to make a purchase.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The jump in mortgage rates also likely will increase the flow of buy-to-let landlords selling up, which will lead to a faster increase in the stock of unsold properties and a strengthening of buyers’ ability to negotiate discounts.”

Tom Bill, head of UK residential research at estate agent Knight Frank, said: “Prices will come under growing pressure given how much higher mortgage costs are compared to 18 months ago and we expect a 10% decline, spread over this year and 2024.”

Matt Thompson, head of sales at London-based estate agent Chestertons, said: “As more and more tenants are facing rent increases, many are reviewing their situation and conclude that, despite higher interest rates, buying still presents a financially attractive option.”

Home sales plumted by 27% in May compared with the same month last year (PA Archive)

Alex Lyle, director of London-based estate agency Antony Roberts, said: “There is still lots of activity and plenty of offers coming in, although many of these buyers aren’t under offer themselves.

“This is a sign of how the market has shifted as this wouldn’t have been the case 12 months ago, when buyers wouldn’t make an offer unless they were themselves proceedable.”

Michael Bailey, director at Preston-based Michael Bailey Estate Agent said: “I haven’t yet seen a dramatic increase in asking price reductions since the most recent base rate increase. That had been expected and priced in.”

Ross McMillan, owner at Glasgow-based Blue Fish Mortgage Solutions, said: “In Scotland, the signs are appearing that the slower housing market and associated flattening of prices seen in other parts of the UK, may finally be starting to get its claws embedded into the Scottish market as well.”

Here are annual house price increases or decreases across the UK, according to Nationwide for the three months to June:

Northern Ireland, £182,740, 0.7%

East Midlands, £232,142, minus 1.1%

Scotland, £178,695, minus 1.5%

Wales, £204,763, minus 1.7%

West Midlands, £239,432, minus 1.9%

Outer Metropolitan (includes St Albans, Stevenage, Watford, Luton, Maidstone, Reading, Rochford, Rushmoor, Sevenoaks, Slough, Southend-on-Sea, Elmbridge, Epsom and Ewell, Guildford, Mole Valley, Reigate & Banstead, Runnymede, Spelthorne, Waverley, Woking, Tunbridge Wells, Windsor and Maidenhead, Wokingham), £421,035, minus 2.9%

Yorkshire and the Humber, £199,146, minus 3.2%

North East England, £154,042, minus 3.3%

Outer South East (includes Ashford, Basingstoke and Deane, Bedford, Braintree, Brighton and Hove, Canterbury, Colchester, Dover, Hastings, Lewes, Fareham, Isle of Wight, Maldon, Milton Keynes, New Forest, Oxford, Portsmouth, Southampton, Swale, Tendring, Thanet, Uttlesford, Winchester, Worthing), £335,775, minus 3.7%

South West, £305,672, minus 4.0%

North West, £205,176, minus 4.1%

London, £516,923, minus 4.3%

East Anglia, £275,443, minus 4.7%

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