Home prices, mortgage approvals and transactions fall

The housing market has recently faced a series of challenges, with negative news affecting house prices, mortgage approvals, and transaction volumes.

According to Nationwide’s monthly property index, house prices experienced a 0.1% month-on-month decline in May. The annual rate of house price growth also decreased by 3.4%, compared to a 2.7% drop in April. This marks the largest annual decrease since July 2009 when there was a 6.2% decline following the global financial crisis. It is worth noting that this decline is largely due to prices remaining relatively stable after accounting for seasonal effects. On average, prices are currently 4% lower than their peak in August 2022.

Nationwide’s chief economist, Robert Gardner, mentioned that although activity in the market is expected to remain subdued in the near future, healthy rates of nominal income growth and slightly lower house prices should gradually improve housing affordability. This improvement may be further supported if mortgage rates moderate once the bank rate reaches its peak.

Meanwhile, the Bank of England’s Money and Credit statistical release reported a decline in net mortgage debt borrowing by individuals, with £1.4 billion of net repayments in April, marking a record low level (excluding the immediate aftermath of the Covid-19 pandemic in 2020). Additionally, net mortgage approvals for house purchases dropped from 51,500 in March to 48,700 in April, while approvals for remortgaging slightly increased from 32,200 to 32,500 during the same period.

Experts in the industry have expressed concerns about the state of the housing market. Karen Noye, a mortgage expert at financial adviser Quilter, highlighted that the latest data suggests a market that is “freezing up” at a time when property transactions would typically be more active. She also noted that the outlook for the housing market appears somewhat bleak as we enter the summer months, with mortgage approvals and property transactions on the decline.

Riz Malik, director of independent mortgage broker R3 Mortgages, based in Southend-on-Sea, commented on the potential impact of mortgage market volatility caused by inflation data. He believes that rising rates could deter buyers and restrain property transactions. If the base rate surpasses 5%, he suggests that a property market slowdown may occur. While predicting market trends is challenging, Malik believes that unless significant positive news emerges, higher interest and mortgage rates could lead to reduced transactions throughout the remainder of 2023 and further cooling of prices.

Reported by Madeleine Knight from Property Week, 1st June 2023