House prices in the UK were relatively stable in June, showing a modest monthly increase of 0.1%, after taking account of seasonal effects. However, the annual growth rate remained in negative territory, with prices down 3.5% compared to June 2022, according to data released by Nationwide.
The monthly index recorded a figure of 518.3 in June, up from 517.7 in May, while the average price (not seasonally adjusted) reached £262,239, up from £260,736 in the previous month.
All regions except Northern Ireland recorded annual price falls in the second quarter of the year, with East Anglia emerging as the weakest performing region, with prices down 4.7% year-on-year.
Nationwide’s chief economist, Robert Gardner, said: “Annual house price growth was broadly stable at -3.5% in June, little changed from the 3.4% decline recorded in May. Prices were also fairly stable over the month, rising by a modest 0.1%, after taking account of seasonal effects, reversing the 0.1% decline seen in May.”
Gardner noted that the rise in borrowing costs is likely to impact the housing market in the near term but also commented on the potential for a soft landing: “A relatively soft landing is still possible, providing the broader economy performs as we (and most other forecasters) expect.”
On the subject of higher interest rates on those refinancing, Gardner explained that around 400,000 borrowers are due to refinance each quarter in the coming years. Although this represents a significant increase, he expressed optimism, stating: “Providing the labour market and interest rates perform broadly as expected, we are unlikely to see the waves of forced selling which would probably be required to result in a more disorderly adjustment to the housing market.”
Among the regions, Northern Ireland saw a modest 0.7% year-on-year price rise, while London recorded a 4.3% decline, and southern England (South West, Outer South East, Outer Metropolitan, London and East Anglia) saw a 3.8% decrease.
Reaction
Nathan Emerson, CEO of Propertymark:
“Our member agents report the number of valuations for sale conducted per branch is remaining steady despite disappointing economic news reported recently. A core portion of the country are still looking to get moving and are negotiating to secure a property at a reasonable price.
“Therefore, those coming to the market with a home to sell are most often also looking to buy, which keeps the wheels of the market turning for all.”
James Briggs, head of personal finance intermediary sales at Together:
“While the continued downward spiral in house prices last month doesn’t ease fears of a crash – this scenario is still unlikely.
“Affordability is still one of the greatest challenges facing borrowers today. However, we are seeing a trend across the specialist lending landscape reacting to an easing swaps market by reducing rates on residential mortgages. It’s these lenders who can take a more individual approach, taking into account clients’ actual incomes and expenditures who will be able to seize opportunities in a softer market.
“In addition there are plenty of opportunities for those who can help first-time buyers, and we’re seeing more demand for renters to purchase properties directly from their landlord to kickstart their homeownership ambitions.
“BTL is also in an interesting space. Current BTL investors are having to carefully weigh up mortgage costs against achievable and affordable rent. And, as BTL landlords roll off fixed rate deals over the next 12 months, we may see investors releasing these properties to the market – offering even further opportunities for potential homeowners.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“These figures are a little disappointing considering they are reflecting what was happening in the early to middle part of this year when we saw a rebound in sales before mortgage rates rose significantly.
“However, Nationwide’s data, though comprehensive and widely respected, can only cover activity of its customers and won’t include the cash buyers who have been dominating the market recently, trying to take advantage of more favourable prices.
“Clearly, the softening that we have seen in recent months in our offices can take up to a year to show itself in the figures so it may be some while yet before marked differences emerge.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“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.”
Nicola Schutrups, managing director at Southampton-based mortgage broker The Mortgage Hut
“The direction of travel is now pretty clear. There’s a lot of uncertainty among people looking to purchase a new home, so it’s no surprise prices continued to edge down on both a monthly and annual basis in July. Further falls in house prices are likely for the rest of 2023 but if inflation continues to come down and the jobs market remains strong, there’s still a chance for a soft landing.”
Jonathan Gordon, director of international real estate specialists, IP Global:
“Affordability is under immense pressure with interest rates where they now are, so the continued downward trajectory in house prices was always on the cards. Though market activity in July was subdued overall, international investors continued to be active last month.
“The slowdown in demand from domestic buyers was partly offset by increased demand from overseas investors. Rising interest rates have subdued demand but the supply of property in the UK is limited and further construction is becoming increasingly difficult to achieve, which will support prices.
“There is a backlog on construction due to numerous factors including fewer construction workers since Brexit, the Covid-19 backlog and the political upheaval in Eastern Europe, driving up raw material costs and causing supply chain issues. All of this means a house price correction is more likely than a collapse.”
Kundan Bhaduri, director of London-based property developer and portfolio landlord, The Kushman Group:
“At long last the ongoing fall in house prices will achieve what many have been waiting for. This decline is helping improve affordability for first-time buyers, who have been struggling to enter the market due to high deposit requirements and rising costs of living. This slowdown in house price growth was a long time coming and is a perfect opportunity to rebalance the market and prevent a potential bubble.
“While a fall in house prices grabs headlines, we see this as a perfect buying opportunity and are capitalising on the incredible value that is now available in the market. Of course, the spike in interest rates will no doubt throw a spanner in the works for some aspiring buyers. The Treasury needs to take proactive steps to manage the mortgage market as products have become incredibly expensive, not just in interest rate terms, but also with product fees and arrangement fees doubling or trebling.”
John Choong, an equity analyst at InvestingReviews.co.uk:
“July’s Nationwide house price index indicates further weakness in the housing market as house prices continue to sink on the back of higher mortgage costs.That said, the promising outlook for inflation has seen gilt yields — and by virtue — mortgage rates decline over the past couple of weeks. Yields have fallen like a stone, and have allowed lenders to reprice their products over the past week or so.
“If this continues, house prices could see further support in the months to come as demand picks back up. After all, mortgage approvals saw a surprise to the upside yesterday, growing to their highest figure since October despite higher mortgage costs, although most of these pre-date the most recent rise in rates.
“Nonetheless, the outlook for the sector will be heavily dependent on three important data points over the next couple of weeks — the bank rate, average weekly earnings, and inflation. Provided those data points come in below analysts’ consensus, a ‘soft landing’ is still possible for the housing market. But until that happens, optimism will remain subdued.”
Joe Garner, managing director of property consultants, Joe Garner Consulting:
“Soaring borrowing and basic living costs are causing a huge drop in household wealth, denting confidence in the property market and creating enormous pressure on homeowners. As more and more people come off ultra-low fixed rates, and with inflation continuing to squeeze household budgets for key basic living costs, it is likely activity and prices will drop further. People seeking affordable housing and those in desperate need will be the real losers here, as usual.
“High interest rates and a planning system that is so broken that levels of development and supply of new homes are falling through the floor hardly inspire confidence. The Bank of England is almost certain to increase the base rate further to reduce inflation, albeit perhaps at smaller increments for a shorter period. Only once inflation has been tamed will we see housing markets recover. 2009 was a notorious year so comparisons with it are concerning.”
Ross McMillan, owner at Glasgow-based Blue Fish Mortgage Solutions:
“In Scotland, it has finally dawned on sellers that the market is perhaps not what they had expected, with a definite re-emergence of more frequent price changes and reductions during July. First-time buyers in particular remain active, however, and properties within the typical price bracket and areas popular with this sector continue to be competitive with offers above home report commonplace.
“There would appear to now be little doubt that the mid-to-high range of properties generally favoured by those moving up the ladder have seen a drop off in activity as many have chosen to sit tight during recent rate and economic volatility.
“The upcoming inflation data will be hugely significant in how the end of 2023 shapes up but with the expectation that the downward trend will continue, there is hope that we will see a flattening market rather than significant drops in house prices in Scotland. But overall, activity levels may remain subdued as people wait and see how things pan out.”
Paul Welch, CEO at London-based LargeMortgageLoans.com:
“The UK property market is currently defined by low activity levels, with volumes down over 50% in our experience. Many investors are waiting for buying opportunities, when more stock potentially hits the market as overleveraged homeowners sell up and downsize.
“Core inflation will determine where we go from here and hopefully that’s not too far up on the rate front, as the base rate rises to date have already materially impacted affordability. House prices will continue to correct after sustained rises inflated by the Government during Covid.”
Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages:
“On the 16th of August, July’s inflation data will be unveiled, potentially shaping the economic outlook for the rest of the year, particularly considering it should account for a drop in energy prices.
“Should there be a significant decrease in inflation, it may pave the way for just one additional rate hike this year, which could lead to further improvements in mortgage pricing. That will provide a degree of support to prices moving forward. But for now it’s very quiet out there.”
Stephen Perkins, managing director at Norwich-based Yellow Brick Mortgages:
“The housing market, based on our experience of working with estate agents, was very tough in July. Plenty of properties have come onto the market, but there is a limited amount of potential buyers due to weak demand. Those who are more keen to sell will reduce their asking price, and that will then set the trend. It is a buyers’ market with plenty of choices and great room for negotiation on offers, if only the mortgage and other living costs were affordable.
“August’s base rate decision is important, and though an increase is still priced in, it must be within expected levels. Mortgage rates based on the latest inflation and swap rate data should start to ease over the coming months but there’s no doubt it will remain a difficult market for the remainder of 2023.”
Ranald Mitchell, director of Norwich-based independent mortgage broker, Charwin Private Clients:
“Housing stock is in decline with more people than ever staying put. Demand remains very strong, though, so those considering selling, and are not under pressure to do so, can still expect offers within striking distance of the asking price.
“I expect the property market to slow for the remainder of the year as everyone hangs fire to see what happens. Inflation is a sore point and the indications are that the Bank of England is now slowing the interest rate increases. A disappointing approach in my view, if inflation remains well above target. My message to the Bank of England is “Don’t nibble on a sh!t sandwich”. We are better off pushing on rather than prolonging that pain.”
Jamie Lennox, director at Norwich-based mortgage broker, Dimora Mortgages:
“Locally, in Norfolk, we are seeing sizeable reductions in asking prices. With the average Norfolk property being close to 10x the average salary, and eye-watering mortgage rates, it’s no wonder there is a slowdown in the local area.
“This isn’t helped in many situations by agents valuing properties like it’s 2021 and buyers being cautious like it’s 2008. Until inflation is firmly under control, I struggle to see housing market conditions improving.”
Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com:
“Locally in the Bristol area, we’re seeing lots of property listings that came onto the market in mid or late June already cutting prices to attract buyers. Vendors of more expensive properties seem to be reluctant to acknowledge the state of the market and are largely leaving prices unchanged.
“They could be waiting a long time to find a buyer. If you need to buy now, the key is to think where property prices are likely to be in two years’ time. My best guess is 20% lower in nominal terms, 30-35% after adjusting for inflation.”
Anna Clare Harper, CEO of sustainable investment adviser GreenResi:
“This house price correction reflects reduced demand and the urgency of supply.
“On demand, the combination of reduced stamp duty and lower interest rates through Covid boosted people’s ability to pay higher prices. Now, higher interest rates, and the end of the stamp duty holiday mean people are no longer willing and able to pay higher house prices.
“On supply, higher interest rates also influence sales prices. For approximately 2 million property owners with variable-rate mortgages or fixed-rate terms coming to an end this year, housing costs are increasing by 2 to 3 times. For those who can’t afford this, a sale at any price is needed, bringing down the average house price.
“Both homeowners and renters are struggling to afford the costs of housing. In some cases, mortgage costs are increasing above their salaries, with profound impacts on quality of living, not to mention consumer spending, which is an important component of economic growth, and house prices.”
Tomer Aboody, director of property lender MT Finance:
“The declining number of transactions,combined with negativity in the market, is pushing down property prices, a trend which has been evident for several months.
“The constant interest rate increases are making affordability difficult for buyers, as they try to make moves, with many waiting until some stability comes in.
“With some better news on inflation recently, it will be interesting to see whether the Bank of England postpones the next rate rise or goes for a slight increase, giving the market some breathing space to adjust.”
Iain McKenzie, CEO of The Guild of Property Professionals:
“Another modest fall in house prices in July reflects what we are seeing on the ground. There may be greater willingness to negotiate when it comes to the asking price but the market is still robust.
“Estate agents across the UK aren’t seeing the dramatic shifts in price that they were during the pandemic, with properties holding their value relatively well considering the economic challenges that have faced the country this year.
“Affordability is the biggest barrier to homeownership, as inflation and cost of living pressures are still gripping households. Without the certainty of knowing that they can pay back monthly mortgage repayments, potential buyers may be hesitant to part with their deposit.
“Despite high rates and affordability pressures, mortgage approvals are returning back to healthy levels. High rental prices across the country mean that now is still a good time to buy, if you are able to secure a mortgage.
“The latest inflation figures show some light at the end of the tunnel, and there is still a good chance that the year will be softer on the industry than was previously forecast.”
