According to Nationwide, UK house prices have experienced a 3.8% average decline in the past year, the worst since July 2009, and slightly lower than last month’s 3.5% fall. Monthly, there was a 0.2% decrease, factoring in seasonal effects. As a result, the typical home price is now 4.5% lower than the peak in August 2022.
Chief economist Robert Gardner highlights that monthly mortgage payments for an average wage earner seeking to buy a typical first-time buyer property with a 20% deposit could account for 43% of their take-home pay, assuming a 6.0% mortgage rate.
“This represents an increase from 32% compared to last year, surpassing the long-run average of 29%.”
“The challenging affordability situation explains the subdued housing market activity in recent months.”
“In June, completed housing transactions reached 86,000, marking a 15% decline compared to the same period last year and about 10% below pre-pandemic levels.”
“Although more recent mortgage approval data showed a slight rise in June’s activity, most of these applications were made before the recent increase in longer-term interest rates. Moreover, current activity remains approximately 1% below 2019 levels.”
“However, achieving a relatively gentle slowdown is still possible, provided the broader economic conditions align with our expectations, as well as those of other forecasters.
“Unemployment is projected to remain low, below 5.0 per cent, and most existing borrowers should be able to handle higher borrowing costs, given a significant portion of them are on fixed rates. Affordability testing ensures those refinancing can manage higher payments.
“Although activity may stay subdued in the short term, healthy nominal income growth and moderately lower house prices are expected to improve housing affordability over time, especially if mortgage rates ease once the Bank Rate peaks.
“The Bank of England is anticipated to raise interest rates again tomorrow, increasing from 5.0 per cent to at least 5.25 per cent. This marks the 14th rise in borrowing costs since December 2021.”
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