Inflation, job market weakness and tax uncertainty weigh on buyer confidence
Annual house price growth in the UK slowed to 2.1% in August, down from 2.4% in July, Nationwide Building Society has reported.
The average property price declined by 0.1% on a monthly basis, falling from £272,664 in July to £271,079 in August.
“The relatively subdued pace of house price growth is perhaps understandable, given that affordability remains stretched relative to long-term norms,” said Robert Gardner, chief economist at Nationwide Building Society. “House prices are still high compared to household incomes, making raising a deposit challenging for prospective buyers, especially given the intense cost of living pressures in recent years.
“Combined with the fact that mortgage costs are more than three times the levels prevailing in the wake of the pandemic, this means that the cost of servicing a mortgage is also a barrier for many. Indeed, an average earner buying the typical first-time buyer property with a 20% deposit faces a monthly mortgage payment equivalent to around 35% of their take-home pay, well above the long run average of 30%.
“However, affordability should continue to improve gradually if income growth continues to outpace house price growth as we expect. Borrowing costs are likely to moderate a little further if bank rate is lowered again in the coming quarters. This should support buyer demand, especially since household balance sheets are strong and labour market conditions are expected to remain solid.”
For Nathan Emerson, chief executive of industry body Propertymark, it is encouraging to see that house prices remain resilient at a time when the housing market has seen turbulence.
“There are, however, many positive factors to reflect upon: we have witnessed a drop in the number of fall-throughs, a trend that demonstrates an uplift in the number of property transactions completed, and the number of overall listings reaching an all-time high,” Emerson said.
“There are challenges ahead, such as increasing the supply of new sustainable homes, providing assistance to first-time buyers, and for lenders, ensuring that the latest drop in interest rates translates into more affordable mortgage products.”
Ryan Etchells, chief commercial Officer at specialist property lender Together, however, warned that while the Bank of England’s latest base rate cut may prompt mortgage lenders to drop their rates, swap rates, which impact fixed-term borrowing, remain volatile.
“Stubborn inflation and a weak jobs market will also subdue the housing market as potential buyers feel the pressure on their purse strings,” Etchells said. “To compound these issues, rumoured tax changes, including a potential property tax on houses worth over £500,000 – which could be announced in the autumn budget – may also put pressure on the market due to unknown secondary impacts creating uncertainty.”
Still, Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, believe the summer market was “surprisingly resilient” given the continued caution demonstrated by buyers.
“Well-priced property continues to sell, and the gap between serious buyers and committed sellers has narrowed,” she added. “Stock levels remain constrained in some areas, keeping competition strong for the best homes.
“Looking ahead to autumn, we expect buyers to remain price-sensitive. The market feels more balanced than it did in the spring as those who are motivated press ahead but we don’t anticipate a surge in supply so the shortage of good stock will likely persist.”
Meanwhile, Nationwide’s latest House Price Index also examined changes in the UK’s housing stock. The average property size has increased marginally over the past decade, rising from 95.3 square metres in 2013 to 96.2 square metres. Terraced houses saw the largest increase in average floor area, up 3.6% since 2013. In contrast, flats are now 1.7% smaller on average, with a typical size of 60.3 square metres.
Owner-occupied homes remain the most spacious, averaging 112 square metres, while private and social rented properties are smaller at 76 and 65 square metres respectively. This reflects a higher proportion of flats in the rental sector.
Compared to the European Union, dwellings in England are generally smaller, with the EU average at 103 square metres. Countries such as the Netherlands, Norway, and Belgium have larger average property sizes, while homes in eastern Europe are typically more compact.
“Eighty-seven percent of owner-occupied properties in England have at least one spare bedroom,” Gardner noted. “Remarkably, 53% are classified as being ‘underoccupied’, that is to say they have two or more spare bedrooms.
“The proportion of underoccupied properties has been trending up over time. By contrast, in the private rented sector, only 16% of properties are ‘underoccupied’.”
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