Annual house price growth slowed to 1.1 per cent across the UK in January, as the cooling of house prices continued for a fifth consecutive month.
This is a further fall from the 2.8 per cent annual growth reported in December, with prices now 3.2 per cent below the peak seen in August.
The average house in the UK had a value of £258,297 in January, down from £262,068 a month prior.
Despite the slowdown in house price growth and signs that mortgage rates are normalising, Nationwide chief economist, Robert Gardner said affordability still remains a significant barrier for potential homeowners.
Over the past year, this has been driven by the rise in the cost of servicing the typical mortgage as a result of the increase in mortgage rates.
“It is too early to tell whether activity in the housing market has started to recover. The fall in house purchase approvals in December reported by the Bank of England largely reflects the sharp decline in mortgage applications following the mini Budget,” Gardner said.
“It will be hard for the market to regain much momentum in the near term as economic headwinds are set to remain strong, with real earnings likely to fall further and the labour market widely projected to weaken as the economy shrinks.”
Gardner noted however that should recent reductions in mortgage rates continue this should “modestly” help the affordability prospects of potential buyers.
Likewise, income growth - which is currently running at 7 per cent in the private sector - and weak house price growth should also help.
“Nevertheless, the overall affordability situation looks set to remain challenging in the near term. Saving for a deposit is proving a struggle for many given the rising cost of living, especially those in the private rented sector where rents have been rising at their strongest pace on record,” Gardner added.
Saving for a deposit remains a significant challenge for potential homeowners.
Nationwide estimates that it would take more than 15 years for someone on an average salary in London to save a 20 per cent deposit for the average first time buyer home.
Gardner noted that all regions across the UK have seen a deterioration in affordability compared to 2021, with the cost of servicing the typical mortgage as a share of take-home pay now at or above the long-run average in all regions.
“Affordability pressures remain particularly acute in London and the south of England, where mortgage servicing costs have risen sharply compared with a year ago. Scotland and the North continue to be the most affordable regions but, even there, mortgage payments as a share of take-home pay are at their highest level for over a decade,” Gardner explained.
“There continues to be a significant gap between the least affordable and most affordable regions, although this has remained broadly stable over the last year. London continues to have the highest house price to earnings ratio at 9.2, but this is still below its record high of 10.2 in 2016,” he added.
Interest rates
The Bank of England’s monetary policy committee is set to meet tomorrow and is widely expected to raise the base interest rate further.
Those in the mortgage industry however, say that it looks as though this increase is already priced into interest rates, with lenders already entering “rate war territory”.
“This will only encourage buyers further,” mortgage broker Phil Gamblin said.
Gamblin, who is the founder of Cardiff-based Oak Financial added: “We've seen a large number of enquiries from home buyers and remortgagers alike, suggesting that the turmoil felt at the end of 2022 is dying down and confidence is returning to the market.
“If, as expected, the Bank of England raises rates again this week, I don't expect this to have a massive effect on the property market.”
Kylie-Ann Gatecliffe, director of mortgage brokerage KAG agreed with Gamblin and said she expects current buyer activity to continue.
“The main challenge we are facing is buyer confusion around the link between the base rate and lenders pricing their products,” Gatecliffe said.
“We have been educating our clients more on swap rates and how the rates are actually looking, as opposed to the doom and gloom of the headlines. We are simply going through a slight correction to pre-pandemic prices and I will be surprised if average values drop by more than 10 per cent.”
jane.matthews@ft.com
