Nationwide House Price Index: Buyers Still have an Appetite to Transact, Even in Tough Market Conditions

October saw a 0.9% rise in UK house prices, after taking account of seasonal effects.

This resulted in an improvement in the annual rate of house price growth to -3.3%, from -5.3% in September.

Nevertheless, housing market activity has remained extremely weak, with just 43,300 mortgages approved for house purchase in September, around 30% below the monthly average prevailing in 2019.

This is not surprising as affordability remains stretched, comments Robert Gardner, Nationwide’s Chief Economist.

Gardner continued, market interest rates, which underpin mortgage pricing, have moderated somewhat but they are still well above the lows prevailing in 2021.

The uptick in house prices in October most likely reflects the fact that the supply of properties on the market is constrained.

There is little sign of forced selling, which would exert downward pressure on prices, as labour market conditions are solid and mortgage arrears are at historically low levels.

Activity and house prices are likely to remain subdued in the coming quarters.

Despite signs that cost-of-living pressures are easing, with the rate of inflation now running below the rate of average earnings growth, consumer confidence remains weak and surveyors continue to report subdued levels of new buyer enquiries.

With Bank Rate not expected to decline significantly in the years ahead, borrowing costs are unlikely to return to the historic lows seen in the aftermath of the pandemic.

Instead, it appears likely that a combination of solid income growth, together with modestly lower house prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim, Gardner concluded.

Guy Gittins, CEO of Foxtons, said:

“There continues to be opportunities for buyers in the current market as reduced demand and lower available stock have created an environment where house prices are not growing at rates seen over recent years in London.

The cost of borrowing remains comparatively high when viewed against historic low levels but buyers and investors can still find good finance deals when working with a professional broker.

This will be especially important for first-time buyers or those with smaller deposits.

All eyes will be on the Bank of England this week and the latest decision with regard to the base rate.

A decision to hold, or even reduce, interest rates is unlikely to generate a dramatic uplift in market activity, especially with Christmas fast approaching, but it will add confidence to the market ahead of January.”

CEO of Yopa, Verona Frankish, commented:

“An increase in the monthly rate of house price growth, however incremental, demonstrates that the nation’s homebuyers still have an appetite to transact, even in tough market conditions.

Of course, higher borrowing costs continue to dampen the market to an extent, with fewer buyers taking the plunge and property values remaining off the record pace set last year.

However, it appears as though the recent decision to freeze interest rates has helped boost market confidence and with the potential of a reduction on the cards this week, we could see a stronger finish to the year than many would have previously anticipated.”

Managing Director of Barrows and Forrester, James Forrester, commented:

“While the previous decision to freeze interest rates would have been warmly welcomed by the nation’s struggling homebuyers, it hasn’t been enough to relight the touchpaper with respect to current market performance, albeit it has spurred a marginal monthly increase in property values.

This is largely due to the fact that the cost of borrowing remains substantially higher and this has continued to restrict both the number of buyers entering the market with the help of a mortgage, as well as their purchasing power.

The result of this reduction in buyer activity has been a stagnation of house prices and we can expect this air of lethargy to remain hanging over the market for the remainder of the year, at the very least.”

Director of Benham and Reeves, Marc von Grundherr, commented:

“It really remains a case of ‘nothing to see here’ when it comes to the current performance of the UK property market.

Yes, the rate of house price growth has stalled in recent months, but at the same time, we’re yet to see any meaningful reduction in property values materialise.

With the countdown to Christmas now on, the likelihood is that the market will remain in a state of house price limbo until January, at which point the usual uptick in activity should help spark some life back into proceedings.”

Managing Director of House Buyer Bureau, Chris Hodgkinson, commented:

“House prices may have cooled when compared to the highs of last year, but all things considered, the market has weathered the storm rather well.

The real issue facing home sellers today isn’t necessarily the price they can achieve, it’s whether or not they have the patience to achieve it.

Buyer numbers have dropped quite drastically and so finding a genuine buyer is the name of the game in the current market.

For those who can wait it out, the chances of securing a fair price are good.

However, for many, the far longer time spent on the market has been the driving factor behind their decision to reduce their asking price expectations in hopes this will entice more interest.”

Tom Bill, Head of UK Residential Research at Knight Frank, said:

“Sentiment in the UK housing market is weak but unlike the early months of Covid or the period following the mini Budget, there is no single cause.

There is financial pain from higher mortgage rates, hesitancy as the Bank of England struggles to contain inflation, and uncertainty as a general election looms and conflict persists in the Middle East.

It means the seasonal bounce in activity didn’t happen this autumn, although price falls have been kept in check by weak supply.

We expect UK prices to fall by 7% this year and 4% next year as inflation comes under control and mortgage rates stabilise.”

Tomer Aboody, director of property lender MT Finance, comments:

“Rising property prices reflect the slight increase in confidence the market has due to rates stabilising.

Although prices remain lower than last year, we need to put this into context as mortgages were also cheaper then.

If the government’s aim to half inflation remains on target, we should hopefully see a continued increase in confidence.”

Anna Clare Harper, CEO of sustainable investment adviser GreenResi, comments:

“Softer pricing reflects higher interest rates, which have a greater impact on affordability than asking prices.

They also reflect the slowdown following last year’s mini bubble, where house prices were inflated by the stamp duty holiday and very low interest rates.

The average house price is still higher than at the start of 2022, and a full-scale house price crash is unlikely.

Housing is a necessity, and overall demand for places to live does not change as a result of the strength of the economy.

Secondly, 36 per cent of homes in England are owned outright, meaning they will not be affected by higher mortgage interest rates.”

Alex Lyle, director of Richmond estate agency Antony Roberts, comments:

“More stock is coming onto the market at the right price and at less ambitious levels than in the past.

While the market doesn’t feel as busy as it has been, a good address at the right price will sell, while overpriced, slightly compromised properties needing work are struggling.

Sales are taking time to get through, chains are complicated and negotiations can be drawn out.

Many buyers continue to wait and see as to what happens with mortgages.

If the Bank of England doesn’t raise rates again, it’s a small step in the right direction.”