Given the headwinds facing the housing market from softer buyer demand against a backdrop of high mortgage rates, house prices displayed a surprising degree of resilience in July.
But home price declines remain the rule, not the exception, as affordability remains severely strained with house prices still significantly higher than pre-pandemic levels, while rising interest rates have pushed the cost of home loans to the highest level since the 2008.
Falling house prices should be good news for buyers, especially those looking to get onto the property ladder for the first time, but they aren’t falling fast enough to alleviate the affordability pressures.
Halifax and Nationwide aren’t singing from the same hymn sheet this month when it comes to house prices.
Nationwide reported a fall in house prices at the fastest annual rate in 14 years, as higher interest rates hamper people’s ability to buy a property with a mortgage.
The conflicting assessments is symptomatic of an uncertain market that continues to adjust to the new status quo of higher prices and higher mortgage rates.
A collection of micro-markets remains at play. Estate agents have reported that a lack of supply in larger property have kept prices inflated, as the race for space theme continues to play out.
For many, the decision to buy or not to buy hinges on where mortgage interest rates land. Inflation is still key to the direction of mortgage rates.
Fixed mortgage rates dipped following the lower-than-expected fall in inflation in June before creeping higher ahead of the Bank of England’s latest interest rate hike.
Inflation is expected to ease significantly in the coming months, led by a fall in energy costs – which could pull down mortgage rates in the process.
Put simply, if inflation starts to move meaningfully lower, this takes the pressure off the Bank of England to continue raising interest rates, so mortgage rates could follow.
Buyers should proceed with caution. With home prices and mortgage rates remaining elevated, buyers should be careful to avoid biting off more than they can chew.
Myron Jobson is senior personal finance analyst at interactive investor
