Annual house price growth softened in August, with Nationwide reporting a 2.1% increase compared with 2.4% in July, according to Nationwide’s latest House Price Index.
On a monthly basis, prices dipped by 0.1% after seasonal adjustment, leaving the average home valued at £271,079, down from £272,664 the previous month.
House prices remained elevated compared with household incomes, while mortgage costs were more than three times higher than in the immediate aftermath of the pandemic.
Prospective first-time buyers in particular continue to face significant barriers, with average mortgage payments accounting for around 35% of take-home pay – well above the long-run average of 30%.
Alongside the house price data, Nationwide also highlighted findings from its recent housing stock research.
Since 2013, the average floor area of UK homes has edged up from 95.3m² to 96.2m².
Terraced houses saw the largest growth in size, up 3.6%, while flats shrank on average by 1.7% to 60.3m². Detached houses are fractionally smaller than a decade ago, averaging 151.9m².
The owner-occupier sector continued to account for the largest properties, averaging 112m², compared with 76m² in the private rented sector (PRS) and 65m² in the social rented sector.
Nationwide also noted that England’s homes remained slightly smaller on average than those across the EU, where the average dwelling size is 103m².
Countries such as the Netherlands, Norway and Belgium top the scale with more spacious homes, while eastern European nations tend to have smaller average property sizes.
A striking trend in the data was the extent of under-occupation in the owner-occupied sector.
Nationwide found that 87% of homes have at least one spare bedroom, while more than half (53%) are classified as underoccupied, with two or more spare rooms.
By contrast, only 16% of private rented homes fell into this category.
Robert Gardner, Nationwide’s chief economist, said: “House prices are still high compared to household incomes, making raising a deposit challenging for prospective buyers, especially given the intense cost of living pressures in recent years.
“Combined with the fact that mortgage costs are more than three times the levels prevailing in the wake of the pandemic, this means that the cost of servicing a mortgage is also a barrier for many. Indeed, an average earner buying the typical first-time buyer property with a 20% deposit faces a monthly mortgage payment equivalent to around 35% of their take-home pay, well above the long run average of 30%.
“However, affordability should continue to improve gradually if income growth continues to outpace house price growth as we expect.
“Borrowing costs are likely to moderate a little further if Bank Rate is lowered again in the coming quarters. This should support buyer demand, especially since household balance sheets are strong and labour market conditions are expected to remain solid.”
Reaction:
Nathan Emerson, CEO at Propertymark:
“It is encouraging to see that house prices remain resilient at a time when the housing market has seen turbulence, very much influenced by the current economic backdrop.
“There are, however, many positive factors to reflect upon: we have witnessed a drop in the number of fall-throughs, a trend that demonstrates an uplift in the number of property transactions completed, and the number of overall listings reaching an all-time high.
“There are challenges ahead, however, such as increasing the supply of new sustainable homes, providing assistance to first-time buyers, and for lenders, ensuring that the latest drop in interest rates translates into more affordable mortgage products.”
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts:
“The summer market was surprisingly resilient given the continued caution demonstrated by buyers. Well-priced property continues to sell, and the gap between serious buyers and committed sellers has narrowed.
“Stock levels remain constrained in some areas, keeping competition strong for the best homes.
“Looking ahead to autumn, we expect buyers to remain price-sensitive. The market feels more balanced than it did in the spring as those who are motivated press ahead but we don’t anticipate a surge in supply so the shortage of good stock will likely persist.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“Five rate cuts from the Bank of England, along with easing of criteria, have helped make mortgage rates more affordable and put buyers in a strong bargaining position.
“However, despite another rate cut in August, some lenders are now pricing upwards, including NatWest, Santander and Coventry, while HSBC has reduced rates. The mixed picture is down to rising Swap rates, which underpin the pricing of fixed-rate mortgages, and lenders not wanting to offer the best rates during the summer months when staff are on holiday and resources are limited.
“While mortgage rates will always bounce around, we are not expecting any significant reductions or increases in the short term. Those looking to buy this autumn should seek advice from a mortgage broker and ensure they get the right deal for their circumstances.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“We are not particularly surprised that prices have softened although agreed sales have held up well, supported by slowly improving affordability and recent reductions in base rate.
“However, with so much property still overhanging the market, many buyers are seizing the opportunity of negotiating hard whereas worried sellers often have no option but to agree revised terms in order for the transaction to proceed.
“Looking forward, we don’t see much change and certainly not much chance of a strong rebound in prices, given concerns about autumn tax rises, particularly for the property market.”
Tomer Aboody, director of specialist lender MT Finance:
“Although mortgage rates are lower than 12 months ago, buyers still find themselves stretched as they need to not only consider their mortgage borrowing but higher stamp duty and inflation. Taking all these factors into account, slower growth in average property prices isn’t surprising.
“With further financial constraints on their way, the government should look to assist buyers with a stamp duty review, which would also help fuel the wider economy.”
Jonathan Handford, managing director at Fine & Country:
“A marginal 0.1% dip in house prices suggests the market is catching its breath rather than changing direction.
“While house price growth appears flat at a national level, it’s worth noting that there are significant regional disparities, with northern England and Scotland continuing to outpace southern areas.
“This relative steadiness owes much to improving affordability, as housing costs begin to align more closely with incomes. However, price growth remains tempered by rising levels of supply.
“The more-than-healthy stock levels reported by estate agents across much of the country are increasing competition among sellers, giving buyers a stronger hand when negotiating on price.
“Uncertainty around potential property tax changes in the autumn budget may also affect pricing and influence sellers’ willingness to be flexible.
“As we move into autumn, clarity on fiscal policy and mortgage conditions will be key to sustaining market momentum. While the property industry is highly adaptable, sweeping changes to taxation or policy risk unsettling activity in the short term.”
