Greater-than-expected fall in home costs as charge hikes hit market

House costs fell by 5.3% within the 12 months to August – a bigger-than-expected drop, in line with Nationwide.

This means the everyday house is now price £14,600 lower than 12 months in the past – with a median property worth of £259,153.

Nationwide’s chief economist, Robert Gardner, says the softening is “not surprising” – with rate of interest hikes by the Bank of England sending mortgage funds increased.

Activity within the housing market is at the moment working effectively beneath pre-pandemic ranges – with mortgage approvals about 20% beneath the 2019 common in latest months.

But Mr Gardner struck an upbeat observe after Nationwide’s newest House Price Index was launched – and stated “a relatively soft landing is still achievable.”

He added: “In particular, unemployment is expected to remain low (below 5%) 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.”

And whereas exercise could stay subdued within the close to time period, Mr Gardner believes a mixture of earnings progress and decrease home costs may enhance affordability if mortgage charges cool.

Andrew Wishart, senior property economist at Capital Economics, believes this “marks the start of a significant further drop in house prices”.

He believes that, by mid-2024, home costs will likely be 10.5% beneath their August 2022 peak – with mortgage charges set to stay between 5.5% and 6% for the subsequent 12 months.

Analysis: For many, home costs cannot fall far sufficient

Paul Kelso

Business correspondent

@pkelso

The UK housing market has lengthy misplaced contact with actuality – however the latest modest fall in costs, confirmed by the Nationwide home worth index figures for August, does comply with the logic of financial traits.

After 14 consecutive Bank of England will increase pushed the bottom charge to five.25% and plenty of mortgages past 6%, it could have been a shock had the housing market not been affected.

While costs have been falling the quantity of completions has stalled too, reflecting maybe that many potential movers are ready to see the place charges will peak earlier than they make the leap.

For these seeking to promote or purchase from an present dwelling the influence will likely be largely theoretical, with the price of remortgaging and the swingeing influence of stamp obligation much more consequential in choice making.

A drop of greater than 5% will likely be most welcome to first-time patrons, however the profit will doubtless be worn out by the elevated price of the mortgage required to get on the ladder within the first place.

For tens of millions, costs can’t fall far sufficient to make that first step lifelike, the hike in borrowing prices compounding an affordability disaster that has seen the common home worth balloon to eight instances the common wage in twenty years.

Additional housing payments are piling extra distress on households at a time when the primary measure of inflation is easing again from the highs of final winter, when unprecedented vitality prices hit Western economies.

The evolving price of dwelling disaster has squeezed affordability and demand at property brokers – and the Bank needs a wider financial slowdown to assist cool the tempo of worth rises.

Data launched by the Bank earlier this week confirmed that mortgage approvals had dropped by virtually 10% final month.

Separate figures from property web site Zoopla recommended that the UK was on observe for about a million home and flat gross sales by the tip of this 12 months – the bottom degree since 2012.

The hunch in exercise displays not solely the Bank’s hikes to the price of borrowing, but in addition poor confidence over the outlook.

Average charges for 2 and five-year mounted residential mortgages stay above 6%.

Higher funding prices for lenders are all the way down to expectations the Bank of England nonetheless has some method to go in its battle towards inflation.

Financial markets at the moment count on the Bank’s charge to peak simply shy of 6% early subsequent 12 months – from its present degree of 5.25%.

Nationwide, like different mortgage lenders within the shifting charge setting, revealed on Thursday that it was lowering some mounted and tracker merchandise by as much as 0.15 share factors from right this moment.