‘Storm clouds gathering’ for property market amid greatest annual fall in home costs for almost 14 years
House costs fell by 3.4% year-on-year in May – the largest annual fall in almost 14 years, in response to one of many UK’s greatest mortgage lenders.
The drop is the largest since July 2009, when an annual fall of 6.2% was recorded, Nationwide stated.
Data from the constructing society additionally confirmed a month-on-month decline of 0.1% in May, with the typical value of a UK dwelling now stated to be £260,736.
Nationwide had stated there have been tentative indicators of a restoration available in the market in a report final month.
Its index for April reported a 0.4% rise in month-to-month costs, whereas the annual fee noticed an enchancment from -3.1% in March to -2.7%.
Robert Gardner, Nationwide’s chief economist, stated the most recent knowledge “largely reflects base effects with prices broadly flat over the month after taking account of seasonal effects”.
But he added: “Average costs stay 4% under their August 2022 peak.
“Recent Bank of England knowledge had proven some indicators of restoration in housing market exercise, though the variety of mortgages accepted for home buy in March was nonetheless round 20% under pre-pandemic ranges.
“Moreover, headwinds to the housing market look set to strengthen within the close to time period.
“While shopper value inflation did sluggish in April, it was a much smaller decline than most analysts had expected.”
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Mr Gardner stated expectations the Bank of England will increase interest rates once more, together with projections that they’ll stay larger for longer, would seemingly renew upward stress on mortgage charges.
But he thinks there are causes to be hopeful concerning the affordability of properties in the long term.
He added: “Nevertheless, in our view a relatively soft landing remains the most likely outcome since labour market conditions remain solid and household balance sheets appear in relatively good shape.
“While exercise is more likely to stay subdued within the close to time period, wholesome charges of nominal earnings development, along with modestly decrease home costs, ought to assist to enhance housing affordability over time.”
Property market facing problems as ‘storms clouds gather’
Alice Haine, personal finance analyst at investment platform Bestinvest, was more pessimistic.
She said: “While the beginning of the 12 months noticed an uptick in market exercise amid falling mortgage charges and a sturdy labour market, storm clouds are gathering as soon as once more as rates of interest and gilt yields edge ever larger.”
She added: “With the markets now betting on extra fee hikes forward, with rates of interest probably peaking at 5.5% – or worse, larger – because the Bank of England seems to be to win the battle to tame inflation, this causes issues for the property market.
“The changing interest rate expectations have led to big movements in the bond markets, and as bond yields rise so do swap rates, which lenders use to price home loans.
“It means debtors should regulate to even larger mortgage charges along with persistently excessive dwelling prices and rising taxes.
“Over the past week, hundreds of residential and buy-to-let mortgages have been pulled from the market as lenders reassess their offers.”
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, stated Nationwide’s knowledge for May prompt patrons “are struggling with affordability”.
She added: “Other timely measures also are pretty downbeat. While our seasonally adjusted version of Rightmove’s measure rose by 1.4% in May, it shows asking prices, not the final price the seller accepts.
“Sellers in all probability are elevating their preliminary asking value so as to obtain a ultimate value they’re snug with… Looking forward, we expect the downward development in home costs has just a little additional to run.”
Meanwhile the Bank of England’s Money and Credit report has revealed net mortgage approvals for house purchases fell from 51,500 in March to 48,700 in April.
It also shows that net repayment of mortgage debt by homeowners hit £1.4bn the same month.
“If the interval for the reason that onset of the COVID-19 pandemic is excluded, internet borrowing of mortgage debt was at its lowest stage on file [series beginning in April 1993],” the Bank stated on Thursday.