Nationwide predicts that housing market activity will remain “modest shortly” due to expectations of additional interest rate hikes. Buyers and sellers may be affected by the real estate market’s expected decline.
According to one of the UK’s largest mortgage lenders, house prices declined 3.4% year-over-year in May, the largest annual decline in nearly 14 years.
The decline is the most significant since July 2009, when an annual decline of 6.2% was recorded, according to Nationwide.
According to May building society data, UK house prices average £260,736 per month.
In a report released last month, Nationwide indicated that there were tentative signs of market recovery.
The indicator showed a 0.4% monthly price increase in April and a -2.1% annual rate, up from -3.1% in March.
Robert Gardner, the chief economist at Nationwide, stated that the most recent data “largely reflects base effects, with prices remaining relatively flat over the month after adjusting for seasonal effects.”
However, he added, “Average prices are still 4% below their peak in August 2022.”
“Recent data from the Bank of England indicated some indications of housing market recovery, although the number of mortgages approved for home purchases in March remained roughly 20% below pre-crisis levels.
Furthermore, housing market headwinds appear likely to strengthen shortly.
Although consumer price inflation slowed in April, the decline was much smaller than anticipated.
Mr. Gardner stated that expectations that the Bank of England will raise interest rates once more. Also forecasts that they will remain elevated for an extended period, will likely exert renewed upward pressure on mortgage rates.
However, he believes there are reasons to be optimistic about the future affordability of housing.
He added, “However, we continue to believe that a relatively soft landing is the most probable outcome, as labor market conditions remain robust and household balance accounts appear to be in relatively good shape.
While activity is likely to remain subdued shortly, robust rates of nominal income growth and modestly declining home prices should help to improve housing affordability in the long run.
Real estate market confronting difficulties as “storm clouds gather”
Personal finance analyst at investment platform Bestinvest, Alice Haine, was less optimistic.
She stated, “While the beginning of the year saw an increase in market activity due to falling mortgage rates and a robust labor market, storm clouds are once again gathering as interest rates and gilt yields continue to rise.”
She added, “As the Bank of England seeks to tame inflation, the markets are betting on additional rate increases shortly, with interest rates possibly peaking at 5.5% – or even higher – causing problems for the property market.
“The fluctuating interest rate forecasts have caused large fluctuations in the bond markets, and as bond yields increase. So do swap rates, which are used by lenders to price home loans”.
It means borrowers must react to higher mortgage rates on top of rising taxes and living costs.
Over the previous week, lenders reassessed their bids and pulled hundreds of residential and buy-to-let mortgages.
Pantheon Macroeconomics’ head UK economist Gabriella Dickens said Nationwide’s May numbers showed buyers “are struggling with affordability.”
She added, “Other timely metrics are also rather pessimistic. Our seasonally-adjusted Rightmove index rose 1.4% in May, but it doesn’t reflect the seller’s final price.
“Sellers are likely increasing their initial asking price to reach a final price that is satisfactory to them… We anticipate that the downward trend in home prices will continue for a while longer.”
Meanwhile, according to the Bank of England’s Money and Credit report, net mortgage approvals for home purchases decreased from 51,500 in March to 48,700 in April.
In the same month, the net repayment of mortgage debt by homeowners reached £1.4 billion.
If the period since the onset of the COVID-19 pandemic is excluded, net borrowing of mortgage debt was at its lowest level on record [series beginning in April 1993],” the Bank reported Thursday.
