Housing market has ‘lost momentum’: Nationwide

A chief economist has said there are indicators that the housing market has lost momentum, with the annual rate of house price growth slowing to 9 per cent in October from 9.4 per cent in the previous month.

Nationwide Building Society’s monthly house price index revealed house prices rose by 0.5 per cent in October, following a fall of 0.1 per cent in September, taking the average UK house price in October was £189,333.

However, Robert Gardner, Nationwide’s chief economist, said that a variety of indicators suggest that the market has lost momentum.

“The number of mortgages approved for house purchase in September was almost 20 per cent below the level prevailing at the start of the year.

“Some forward looking indicators, such as new buyer enquiries, suggest that activity may soften further in the near term, especially in London.

He noted however, that broader economic indicators remain positive. “The labour market has continued to improve, with the unemployment rate falling to 6 per cent in the three months to August and mortgage rates have fallen back towards all-time lows.

“If the economy and the labour market remain in good shape, activity is likely to pick up in the quarters ahead providing mortgage rates do not rise sharply.”

The latest report also found that fixed-rate mortgages are increasingly popular, particularly amongst first time buyers for whom certainty over monthly payments is likely to be particularly important.

Mr Gardner stated: “Borrowers taking out fixed rate mortgages have benefited from historically low interest rates. For example, the average 2-year fix (for those with a 25 per cent deposit) is currently 2.46 per cent. While this is a little higher than earlier this year, it is still more than one percentage point below the level prevailing in 2012.

“This has helped, in part, to offset the negative impact of rising house prices on affordability. Indeed, even though house prices are at an all-time high, the cost of servicing a typical mortgage is still close to the long term average as a share of take home pay.”

Despite the high proportion of new mortgage lending on fixed rates, around 60 per cent of the stock of outstanding mortgages is on variable interest rates.

The majority of recent fixed rate deals are also for relatively short time periods, with 62 per cent for two years and around 30 per cent for five years.

Mr Gardner added: “Nevertheless, the housing market should be able to cope with higher interest rates, provided the increase is gradual and the economy and the labour market remain in good shape.

“Guidance from the Bank of England suggests that the increase in interest rates is likely to be gradual, and that they are expected to settle at a level somewhat below the average prevailing before the financial crisis, which should help ensure borrowing costs remain manageable.”