The UK property market exhibits a cooling trend, with house prices dropping across all regions for the first time since 2009.
Recent data from Nationwide reveals that there has been a noticeable dip in the average house prices across all regions in the three months leading up to September, the first widespread drop observed since 2009. The reason? Surging mortgage rates are putting the squeeze on the property market. Specifically, the average house price sat 4.7% lower this quarter than it did in the same period in 2021, setting a worrying tone for the property market.
Regional Breakdown: Variations in House Price Slumps
Interestingly, the extent of this decline varied widely regionally. The south-west of England, for example, witnessed a steep decline—the house prices fell by an extreme 6.3%. Multiple other regions, notably Wales and the East Midlands, logged price reductions exceeding 5%. The bustling metropolis of London wasn’t spared either, with a price drop of 3.8%.
The best-performing region was Northern Ireland, but even it couldn’t evade a price slump—although its decline was a less concerning 1.8%, falling from a 0.7% rise in the previous quarter.
The Role of Challenging Housing Affordability
Robert Gardner, the chief economist at Nationwide, attributed this rather subdued picture to a more challenging landscape for housing affordability. He illustrated this point by calculating that an individual on an average income, investing in a first-time buyer’s home with a 20% deposit, would spend a whopping 38% of their take-home pay on monthly mortgage payment. That’s a huge increase from the long-term average that stood at 29%.
Bank of England’s Interest Rates Impact Mortgage Payments
The increase in monthly mortgage payments trails the Bank of England’s (BoE) decision to hike interest rates from the bottom record of 0.1% in November 2021 to a whopping 5.25% currently. Consequently, that led to a fall in mortgage approvals to a six-month low in August and raised the average new mortgage rate to its highest since 2008.
Despite this, the market and most economists posit a halt to further BoE hikes due to inflation diminishing more than projected in August. Gardner also offered reassurances that this anticipated no-change decision could lower long-term mortgage pricing and thereby lessen the load on homeowners and potential buyers.
Market Status: Limbo Due to Falling Prices and Rates
Despite the troubling picture, some see these price drops as an opportunity. Graham Cox, the founder of SelfEmployedMortgageHub.com, shared that upcoming buyers are biding their time, anticipating more competitive pricing as further price declines are expected.
The exact words he used were, “With both mortgage rates and house prices expected to be lower this time next year, the property market is in limbo.” It would seem many potential buyers are pausing their plans, intending to snag property deals as prices continue to dip.
September Snapshot: Unchanged Monthly House Prices
Adding another layer of complexity, there was no change in the average UK house price from August to September. Furthermore, these September stats were 5.3% less than the same month in 2021—the steepest drop since July 2009. However, this stagnant price happened to beat the forecast by Reuters’ polled economists who predicted a monthly decline of 0.4% and an annual fall of 5.7%.
Light at the End of the Tunnel?
While the current scenario paints a bleak picture, Samuel Tombs, economist at Pantheon Macroeconomics, remains optimistic. Rising wages and confidence, falling mortgage rates, and high rental prices making property purchasing an increasingly attractive option suggest that the downturn in house prices may not last long. Perhaps the downturn still has a silver lining.
Regardless, make sure to look before you leap and thoroughly evaluate your options before making any significant decisions on property investment in these turbulent times.