Housing affordability remains stretched for homebuyers
The average price of a house in the UK was £260,828 in July, down by 0.2% on the previous month, the latest house price data from Nationwide Building Society has shown.
July also saw house prices fall by 3.8% annually, higher than June’s annual house price decrease of 3.5% – making last month the weakest outturn since July 2009.
The price of a typical home is now 4.5%, or almost £13,000 below the peak of £273,751 recorded in August 2022.
“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,” Robert Gardner, chief economist at Nationwide Building Society, commented on the latest Nationwide house price index.
“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.”
Gardner explained that this affordability challenge was a big reason why housing market activity has been subdued in recent months.
James Briggs, head of personal finance intermediary sales at Together, agreed that while affordability is still one of the greatest challenges facing borrowers today, the specialist lending landscape has reacted 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,” Briggs said.
“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.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, remarked that until we see a consistent decline in mortgage pricing, buyers relying on mortgages are likely to be more price sensitive in the 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,” Harris said.
“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.”
For Nicola Schutrups, managing director of mortgage broker The Mortgage Hut, there is still a lot of uncertainty among people looking to purchase a new home – and that is why house 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,” she pointed out.
Gardner also believes that a relatively soft landing is achievable, providing broader economic conditions evolve in line with Nationwide’s and most other forecasters’ expectations.
“Unemployment is expected to remain low, and the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs, given the high proportion on fixed rates, and where affordability testing should ensure that those needing to refinance can afford the higher payments,” Gardner said.
“While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once bank rate peaks.”
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