House prices fall 3.5% in a year says Nationwide
Home prices have fallen over the past year, according to Nationwide’s latest home price index, but have held steady month over month as the market persists despite the mortgage chaos.
The price of the average home fell by 3.5 per cent to £262,239 from June 2022 to this month.
But compared to the average of £260,736 in May 2023, it rose by a small margin of 0.1 per cent.
Nationwide says that despite rising mortgage rates, a soft landing in house prices remains possible thanks to strong labor market data and wage growth.
Only Northern Ireland saw house prices rise in the past year
Robert Gardner, chief economist at Nationwide, said: “Longer-term interest rates, which support mortgage prices, have risen sharply in recent months, in response to data suggesting that underlying inflation in the UK economy is not declining as quickly as expected.
“As a result, investors expect the Bank of England to raise its policy rate further and that it will remain high for longer.”
Mortgage rates have risen significantly over the past month and are now close to last year’s mini budget, affecting some people’s ability to buy or move.
However, this may not yet be fully reflected in Nationwide’s numbers as recently made home sales are agreed weeks or months earlier.
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“The sharp rise in borrowing costs is likely to be a significant drag on housing market activity in the near term,” Gardner added.
“For a starter who earns the median wage and buys the typical property with a 20 percent down payment, mortgage payments as a share of take-home pay are now well above the long-term average.”
He does note, however, that mortgage applications have not yet declined and customer confidence is still improving. UK residential transactions were 80,020 in May, down 27 percent from May 2022 and down 3 percent from April 2023, according to the latest HMRC transaction data.
Affordability for buyers has been affected by the rise in mortgage interest rates and a relatively low fall in house prices
There is an argument that the higher rates of recent weeks have yet to be reflected in what is happening on the ground.
Iain McKenzie, chief executive of The Guild of Property Professionals, says: ‘While falling every year, house prices are now holding up in the face of tougher market conditions, which should provide much-needed reassurance to both buyers and sellers. .
“A leveling out in prices will be welcome news for homeowners who have seen their property values fall in the first half of this year.”
Homeowners due to re-mortgage this year — an estimated 1.4 million people — are facing a significant mortgage shock as interest rates have risen from two and five years ago.
Those remortgages face £385 per month
According to Nationwide, about 20 percent of fixed-rate mortgages will need to be refinanced by the end of 2023 and about 40 percent by the end of 2024.
“For those coming off two-year fixed-rate contracts, with mortgage rates approaching 6%, a new two-year deal is about 425 basis points higher than their existing rate, equating to an increase of £385 a month for the average borrower.” says Gardner.
Similarly, those coming off five-year deals face a 350 basis point increase on a new five-year fix (assuming a rate of 5.5 per cent), which equates to an increase of around £315 per month for a typical mortgage borrower.
Peter Dockar, chief commercial officer at mortgage lender, Gen H said: ‘Common sense would suggest that, with current interest rates, house prices will fall, but given the lack of supply, they are unlikely to fall very far.
The continued lack of supply may explain the relative stability of prices in June. As expected, borrowers are naturally concerned. Those stuck on lower mortgage rates in 2021 are facing what may seem like an insurmountable increase in their payments.
“They have to choose between locking in now, perhaps at more than 6 percent, or trying to use the standard variable rate in the hope of rate cuts in the medium term. Neither is an attractive option.’
Last week, the government announced measures to help mortgage holders, including the option to switch to an interest-only payment plan for six months without impacting your credit score.
However, it will take weeks for borrowers to access the measures as lenders are still in the process of implementation.
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