The UK housing market continues to grapple with uncertainties and challenges, as Nationwide’s recently released House Price Index for September 2023 reveals. While house prices remained relatively unchanged over the month, there is a year-on-year decrease of 5.3%, equivalent to approximately £14,500. These numbers underscore the ongoing struggles in the housing sector, as potential homeowners face affordability issues and economic uncertainties.
House Price Index Indicates Mortgage Affordability As A Big Issue
One of the key factors contributing to this stagnation is the subdued housing market activity. In August 2023, only 45,400 mortgages were approved for house purchases, which is approximately 30% below the monthly average of 2019 before the pandemic hit. This subdued activity is hardly surprising, given the increasing challenge of getting a mortgage in 2023. For example, someone with an average income purchasing a typical first-time buyer home with a 20% deposit would be spending 38% of their take-home pay on their monthly mortgage payment, significantly higher than the long-run average of 29%.
Investors In UK Property And Interest Rates
According to the house price index and comments made by Nationwide’s chief economist Robert Gardner, investors have been lowering their expectations regarding the future path of the Bank Rate due to signs of easing underlying inflation pressures in the UK economy and softening labour market conditions. This has led to downward pressure on longer-term interest rates, which form the foundation for fixed-rate mortgage pricing. If this trend is sustained, it could alleviate some of the pressure on those looking to remortgage or buy a home.
However, it is important to note that while interest rates may ease somewhat, they are not expected to decline significantly in the years ahead, and borrowing costs are unlikely to return to the historic lows seen after the pandemic. Instead, a combination of solid income growth, slightly lower house prices, and mortgage rates is expected to gradually improve affordability over time, with housing market activity remaining subdued in the interim.
Smaller, Less Expensive Properties Becoming More Popular
The housing market’s response to these challenges is pretty obvious. As mentioned in Nationwide’s August 2023 house price index, there seems to be a shift towards smaller, less expensive properties, with transactions for flats holding up better than any other property types. This may be due to the relatively better affordability of flats, as they experienced less price increase during the pandemic period. Despite recent demand for flats holding up, the price underperformance continues in the most recent quarterly data, with flats seeing the largest year-on-year fall of -5.7%, compared to -3.6% for detached properties, -4.6% for semi-detached, and -5.3% for terraced properties.
Regional Property Price Differences
Nationwide’s regional house price records for Q3 show annual price declines across all regions. The Southwest is the weakest performing region, with prices down 6.3% year on year, while Northern Ireland remains the best performing region, with a modest 1.8% fall. Wales saw a sharp slowdown in the annual rate of change to -5.4%, compared to -1.4% in the last quarter. Scotland also experienced a slowing in annual house price growth, with a rate of -4.2% compared to -1.5% in Q2.
In northern England, comprising North, Northwest, Yorkshire & The Humber, East Midlands, and West Midlands, prices were down 3.9% compared to Q3 2022. The North was the strongest performing northern region, with the annual rate of change improving from -3.3% to -2.0%, while the East Midlands was the weakest, experiencing a 5.5% decline. Southern England, encompassing Southwest, Outer Southeast, Outer Metropolitan, London, and East Anglia, saw a 4.8% year-on-year fall. London was the best performing southern region, although it still saw a 3.8% annual decline.
Thinking Of Purchasing A Property? Speak To The Mortgage Experts
The UK property market is in a state of flux currently. Prices are decreasing, but so are mortgage interest rates and mortgage affordability is changing too. If you are considering buying a property, either now or sometime in the near future, the best thing you can do to set yourself up properly is to speak to a qualified mortgage and property expert. Call our team today or drop us a message to arrange a free initial mortgage consultation. We are here to help.