House Prices are falling at the fastest rate since the financial crisis.
Nationwide data out this morning shows prices dropped 3.8% in the year to July in the biggest fall in house price inflation for 14 years.
Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist, said:
“Annual house price growth edged down to -3.8% in July. This was the weakest outturn since July 2009, although it is only modestly lower than the -3.5% recorded last month. There was a slight fall of 0.2% over the month, after taking account of seasonal effects. As a result, the price of a typical home is now 4.5% below the August 2022 peak.
“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 (see chart below). 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.
However Bank of England data on Monday showed a surprise jump in mortgage approvals in June, although most economists think a downturn in the housing market has further to run – with the bulk of the Bank’s rate hikes since late 2021 yet to feed into the economy.
