"The swap rates which underpin fixed rate mortgage pricing already embody expectations that interest rates will decline in the years ahead."
- Robert Gardner, Nationwide's chief economist
UK house prices increased by 0.3% month on month in July, resulting in a pickup in the annual rate of house price growth from 1.5% in June, to 2.1% in July - the fastest pace since December 2022, according to the latest Nationwide house price index.
However, prices are still around 2.8% below the all-time highs recorded in the summer of 2022.
Robert Gardner, Nationwide's chief economist, said: “Housing market activity has been holding relatively steady in recent months with the number of mortgages approved for house purchase at around 60,000 per month. While this is still c.10% below the level prevailing before the pandemic struck, it is still a respectable pace given the higher interest rate environment.
“For example, for borrowers with a 25% deposit, the rate on a five-year fixed rate deal has been around 4.6% in recent months, more than double the 1.9% average recorded in 2019. As a result, affordability is still stretched for many prospective buyers. Indeed, for an average earner buying a typical first-time buyer property, the monthly mortgage payment is equivalent to around 37% of take-home pay, well above the 28% prevailing pre-Covid and the long-run average of c30%.
“Investors expect Bank Rate to be lowered modestly in the years ahead, which, if correct, will help to bring down borrowing costs. However, the impact is likely to be fairly modest as the swap rates which underpin fixed rate mortgage pricing already embody expectations that interest rates will decline in the years ahead.
“As a result, affordability is likely to improve only gradually through a combination of wage growth outpacing house price growth (which is expected to remain fairly flat), with some support from modestly lower borrowing costs.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, commented: “The housing market continues to be remarkably robust but what would really boost transaction volumes would be a rate cut from the Bank of England. With inflation hitting the 2 per cent target and the Fed signalling that it will cut rates in September if inflation continues to ease, surely it is time for the Bank of England to follow suit?
“That first reduction, when it comes, will send an important message to borrowers, enabling them to plan their moves with more confidence. In many ways it will influence homebuyer decision-making far more than the election outcome, which most had expected.
“Lenders continue to trim mortgage rates as they compete for business and Swaps continue to fall. Borrowers will be hoping this trend continues into the autumn.”
Jonathan Hopper, CEO of Garrington Property Finders, added: “After the election hiatus, the property market is starting to click back into gear.
“Even though July and August are traditionally quiet months for the property industry, the ‘back to school bounce’ is likely to start earlier and be stronger as would-be buyers who put their househunting on pause in the run-up to the election return in force.
“Official data released yesterday showed the number of home sales completed in June trod water, but many estate agents are now reporting a gentle uptick in new buyer enquiries and the market is slowly gaining momentum.
“However activity is noticeably split. Those already under offer are holding firm, but some buyers are revising their mortgage arrangements mid-transaction in order to take advantage of the more affordable interest rates launched in recent weeks. This is lengthening the time to exchange.
“Yet many buyers are finding their hand to be strong, as the high number of homes for sale in some areas means they can often drive a very hard bargain. Sellers are both pricing competitively and open to offering a price reduction in return for the certainty of a sale to a ‘proceedable’ buyer.
“The most lethargic area of the market is new buyers entering the process. With the distraction of the summer holidays this may be understandable, but it’s one to watch as the market stabilises.”
