House price growth slowed to 10 per cent last month but economists say prices have “remained firm” against the backdrop of what they are calling a “modest” slowdown to date.
Falling from 11 per cent in July, house price growth clung to double digits in August. Over the past two years, the average house price has risen by almost £50,000.
The average house price now sits at £273,751, according to Nationwide’s latest House Price Index published today (September 1).
The bank’s chief economist Robert Gardner said: “There are signs that the housing market is losing some momentum, with surveyors reporting fewer new buyer enquiries in recent months and the number of mortgage approvals for house purchases falling below pre-pandemic levels.
“However, the slowdown to date has been modest, and combined with a shortage of stock on the market, has meant that price growth has remained firm.”
Brokers have said August was one of their busiest months yet for mortgages. But the market is now turning in favour of buyers as interest rates continue to rise.
"Although we have a cost of living crisis which would usually bring the market down, this has been counteracted by so many people rushing to buy now to avoid the higher rates which are being predicted for the end of the year and 2023,” said London-based broker Finanze, Imogen Sporle.
“I do think price growth will slow however but in comparison to the massive boom we have had in the past two years I do not think this is anything to worry about. I do think the lack of stock will help support prices."
Some brokers are already noting a slowdown. Shropshire-based broker Scott Taylor-Barr at Carl Summers Financial Services said he has seen a noticeable reduction in the number of enquiries coming in for people looking at buying property.
He added: “But many people are keener than ever to review their existing mortgage, so activity is still at the same level in the mortgage market overall.
“The shift away from property purchase will no doubt have an impact on house price growth, maybe even stalling it completely for a period, but I can't see any widespread falls in house prices as long as mortgages are still available to the majority of potential buyers.”
A Santander economist said earlier this year that house price growth could flatline to zero next year as mortgage approvals and remortgages start to fall back to pre-pandemic levels.
Meanwhile Rightmove’s June house price index predicted growth falling to 5 per cent by December.
Taylor-Barr said if mortgage lenders constrict mortgage availability, then that may have a negative effect on house prices, as then only those with good credit scores and larger deposits will be in a position to buy.
In July, mortgage affordability dropped to its lowest level in 2022. According to the latest Mortgage Broker Tools Affordability Index, the minimum average loan size offered by mortgage lenders fell to just over £136,000 in July, which is down from £150,000 in January.
The number of affordable lenders able to offer mortgages to customers who want a high loan-to-income has also fallen from 27 to 22 in just a couple of weeks, suggesting lenders are tightening their appetite for lending at higher income multiples.
Squeeze on lower house prices
Manchester-based broker Jamie Thompson said he has seen more borrowers revising down the purchase price they are looking at in some cases.
“This means that those who were looking to purchase for around £300,000 a few months ago are now considering smaller, more energy-efficient homes around £200,000,” he explained.
“Paradoxically this could mean more people competing for properties at lower price points, increasing the prices at the lower end of the ladder more than the higher, making it yet harder still for first time buyers without access to the Bank of Mum and Dad.”
Nationwide’s house price index found the most energy efficient properties - those rated A-C - will pay £1,700 per year in energy bills, whilst the least efficient (F-G) typically see bills over twice as high at around £3,900 per year.
“While only a small proportion of the stock is rated F/G (approximately 2 per cent of those with mortgages), the challenges for these households appear particularly acute,” it said.
Some brokers have also said many homeowners could be forced to sell their home and downsize in the face of rising energy bills and interest rates which keep on climbing.
ruby.hinchliffe@ft.com
