"While most of the economy has moved on from the mini-Budget, the hangover is longer for the UK housing market"
Prospective buyers will likely welcome the 0.5% month-on-month price fall recorded last month, which saw average house prices 3.7% lower than the August 2022 peak and suggesting that the pandemic market boom has officially ended.
Robert Gardner, Nationwide's Chief Economist, comments: “Annual house price growth slipped into negative territory for the first time since June 2020, with prices down 1.1% in February compared with the same month last year. Moreover, February saw a further monthly price fall (-0.5%) – the sixth in a row – which leaves prices 3.7% below their August peak (after taking account of seasonal effects).
“The recent run of weak house price data began with the financial market turbulence in response to the mini-Budget at the end of September last year. While financial market conditions normalised some time ago, housing market activity has remained subdued.
"This likely reflects the lingering impact on confidence as well as the cumulative impact of the financial pressures that have been weighing on households for some time. Indeed, inflation has continued to outpace wage growth and mortgage rates remain significantly higher than the lows recorded in 2021. Even though consumer sentiment has improved in recent months, it is still languishing at levels prevailing during the depths of the financial crisis.
Deposits remain a struggle for many
“It will be hard for the market to regain much momentum in the near term since economic headwinds look set to remain relatively strong, with the labour market widely expected to weaken as the economy shrinks in the quarters ahead, while mortgage rates remain well above the lows prevailing in 2021.
"Indeed, despite the modest fall in house prices, for a prospective first-time buyer earning the average income looking to buy the typical home, mortgage payments remain well above the long-run average as a share of take-home pay. In addition, deposit requirements remain prohibitively high for many and saving for a deposit remains a struggle given the rising cost of living, especially for those in the private rented sector, where rents have been rising strongly.
"However, conditions should gradually improve if inflation moderates in the coming months as expected, easing pressure on household budgets. Solid gains in nominal incomes together with weak or declining house prices will also support housing affordability, especially if mortgage rates edge lower in the coming months.”
Nathan Emerson, CEO of Propertymark, comments: “Despite house prices falling, values are still higher than pre-pandemic. Because of this, our member agents recently reported an 80 per cent increase in new sellers entering the market, showing that despite not pulling in as much money from a sale as they would have done last year, sellers still have a healthy appetite to get moving.
“Previously, sellers were able to be more ambitious about the price, but buyers are most certainly now in the driver’s seat and are negotiating hard when hunting for their ideal home."
Tom Bill, head of UK residential research at Knight Frank, said: “While most of the economy has moved on from the mini-Budget, the hangover is longer for the UK housing market. It has led to a mismatch between the most recent anecdotal evidence and the latest data.
"While last month saw the steepest annual house price decline in more than ten years, activity has been solid so far this year as buyers and sellers adapt to higher mortgage rates. We expect transaction levels to fall from the heights of the pandemic and prices to decline by 5% this year but the UK housing market is far from being on its knees.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: "Average property prices fell in February as higher mortgage costs, along with the rising cost of living, have an inevitable impact on affordability.
"Swap rates, which underpin the pricing of fixed-rate mortgages and have been falling since the turmoil created by the mini-Budget in September, have taken a turn and moved the other way in the past couple of weeks on the back of expectations of further base rate rises.
"Subsequently, several lenders who launched sub-4 per cent five-year fixed-rate mortgages have since increased these, with mortgage rates likely to be up and down in the coming weeks.
"Borrowers should seek advice from a whole-of-market broker before either taking the plunge or holding off in the expectation that rates will come down further."
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: "These comprehensive and widely respected figures reiterate continuing worries about interest rates and inflation, which are keeping prices in check.
"However, the market is definitely not in free fall. On the ground, we are seeing more listings and protracted sales so buyers have more choice, are taking longer and negotiating harder when making offers."
James Briggs, head of personal finance intermediary sales at specialist lender at Together, comments: “House prices have fallen for the third consecutive month from 1.1% to 0.6%.
“With the House Builders Federation warning that the number of new properties completed each year in England could slump to its lowest level since the Second World War1 and as we approach a recession with tighter mortgage availability, it’s likely activity could slow somewhat further in the coming months.
“With the Spring Budget approaching, borrowers will be closely watching for any signs of additional mortgage support to relieve ongoing uncertainty. Whether this comes to fruition is not yet clear. Access to specialist lenders who are able to consider personal and financial circumstances will be key for all those hoping to progress with property plans this year, ensuring more people can take that first step on the property ladder.”
