House price declines continue ‘but soft landing is possible’

Annual house price growth remained negative in June as mortgage rates hit buyer budgets but there is still a chance of a “soft landing” for the property market, Nationwide claims.

The lender’s latest house price index shows average property values declined by 3.5% last month from 3.4% in May.

Average prices rose on a monthly basis by 0.1% compared with a 0.1% decline in May, putting typical values at £262,239.

Robert Gardner, Nationwide's chief economist, said: “The sharp increase in borrowing costs is likely to exert a significant drag on housing market activity in the near term.

“For example, for a representative first-time buyer earning the average wage and buying the typical property with a 20% deposit, mortgage payments as a share of take-home pay are now well above the long-run average.”

Gardner said a “relatively soft landing” is still possible, providing the broader economy performs as expected.

He added: “Labour market conditions are expected to remain relatively robust, with the unemployment rate remaining below 5%, while income growth is projected to remain solid.  

“With bank rate likely to peak in the quarters ahead, longer term interest rates should also start to fall back.

“As a result, a combination of healthy rates of income growth and modest price declines should improve affordability over time, especially if mortgage rates moderate.”

Commenting on the report, Iain McKenzie, chief executive of The Guild of Property Professionals, said: “While house prices are down year on year, they are holding steady now in the face of tougher market conditions, which should provide some much-needed reassurance to buyers and sellers alike.

“A levelling out of prices will be welcome news to homeowners who have seen their property’s value soften in the first half of this year. 

“Interestingly, Northern Ireland is outperforming any other region of the UK on house prices, showing not only resilience but also continuing annual growth.

“This confidence is reflected in what we are seeing on the ground, with the majority of potential buyers hoping to get on the property ladder in the next few months. Despite worries regarding mortgage rates, only 7% of people we surveyed are worried that this may affect their ability to secure one.

“Affordability is a big hurdle right now, and people may be hesitant to sign up to a mortgage without the certainty that they can afford the repayments, especially after the fixed period ends. 

 “As inflation crawls down, interest rates will hopefully come down too, which will provide respite for those on a variable rate mortgage that have seen their monthly repayments rocket recently. When rates eventually fall, we should also see more competitive mortgage products up for grabs.”