The UK property market has shown surprising resilience in the face of challenging conditions, with house prices experiencing an unexpected increase of 0.9% last month, according to the latest figures from Nationwide. Despite the subdued sales activity, prices have held up more robustly than expected, reducing the annual rate of fall from 5.3% to 3.3%.
The uptick in house prices can be attributed to constrained supply in the market, as there is little sign of forced selling that would exert downward pressure on prices. Labour market conditions remain solid and mortgage arrears are at historically low levels, indicating a lack of financial distress among homeowners. However, housing market activity remains extremely weak, with mortgage approvals for house purchase in September reaching just 43,300, approximately 30% below the monthly average in 2019.
One of the key factors influencing the housing market is affordability. While market interest rates have moderated somewhat, they are still significantly above the lows of 2021. This has resulted in stretched affordability, making it challenging for potential buyers to enter the market. However, there is some positive news for first-time buyers, as more optimistic interest rate expectations are already filtering through to the mortgage market, with average two- and five-year fixed mortgage rates easing from their summer peaks.
Existing homeowners are still feeling the drag effect from the 14 interest rate rises, as the effective interest rate on newly drawn mortgages rose to 5.01% in September, a sharp increase from the 1.78% seen in September 2021. However, the recent reduction in mortgage rates on a weekly basis is starting to alleviate the affordability headwinds. This, coupled with positive trends in real wages, is expected to support house prices until demand returns in earnest.
The recent data on house prices has generated a range of opinions from experts in the field. Alice Haine, Personal Finance Analyst at investment platform Bestinvest, highlights the impact of interest rate expectations on the mortgage market, stating that average rates are easing as lenders slash deals to attract new business. However, she notes that existing homeowners are still experiencing the consequences of the rate hikes.
John Choong, Senior Equity Research Analyst at Investing Reviews, suggests that recent trends from Nationwide and Halifax indicate some mildly encouraging signs that the housing market correction may be close to the bottom. The reduction in mortgage rates and positive sentiment regarding interest rates reaching their peak are contributing factors.
Tom Bill, Head of UK Residential Research at Knight Frank, points out that sentiment in the UK housing market is weak due to multiple factors, including higher mortgage rates, inflation concerns and political uncertainty. The absence of the seasonal bounce in activity during autumn can be attributed to these factors, although price falls have been kept in check by weak supply. Knight Frank predicts a 7% fall in prices this year and a 4% fall next year as inflation comes under control and mortgage rates stabilise.
While the overall UK housing market has shown resilience, it is important to note that there are regional variations in property prices. Elite Property’s Managing Director highlights the robustness of the property market in Doncaster, where the average property price is actually 0.8% higher than the previous year. However, transaction levels have experienced a significant decline of over 30% year-on-year in the region. This emphasises the importance of presenting properties well, pricing them attractively and working with proactive agents to ensure successful sales