UK house prices fell unexpectedly in August as buyers continue to struggle despite lenders cutting borrowing costs. Nationwide said house prices fell 0.2 per cent, the first drop since April.
The fall came as separate figures published by the Bank of England showed buyers took on £2.8bn of mortgage debt in July, up from £2.6bn in June. The amount was the highest borrowed since November 2022 (£3.3bn) following the Liz Truss-Kwasi Kwarteng “mini-Budget crisis” which sent mortgage rates rocketing.
Home mortgage approvals increased to 62,000 in July, the highest since September 2022 (65,100), and up from 60,600 in June this year, the Bank’s figures show.
The surprise fall highlights the fact that while the property market is staging a slow, gradual recovery after tumbling in 2023, it is an unsteady recovery as first-time buyers still face affordability problems and are finding it difficult to get on the housing ladder, despite the Bank of England cutting interest rates this month for the first time since the pandemic.
While surveys show buyers and property professionals feel more confident about the future the market’s recovery might not be straightforward with mortgage rates three times higher than in 2021 and analysts suggesting the Bank will continue to take a cautious approach to cutting rates as inflation is forecast to rise.
The Nationwide survey found annually prices rose by 2.4 per cent year-on-year in August leaving the average home costing £6,222 more than a year earlier, with an average sale price of £265,375.
Robert Gardner, Nationwide’s chief economist, said: “UK house prices fell by 0.2 per cent month-on-month in August, after taking account of seasonal effects, but the annual rate of house price growth continued to edge higher.
“Average prices were up 2.4 per cent year-on-year, a slight pick-up from the 2.1 per cent recorded in July and the fastest pace since December 2022 (2.8 per cent). However, prices are still around 3 per cent below the all-time highs recorded in the summer of 2022.
“While house price growth and activity remain subdued by historic standards, they nevertheless present a picture of resilience in the context of the higher interest rate environment and where house prices remain high relative to average earnings.
“Providing the economy continues to recover steadily, as we expect, housing market activity is likely to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth.”
Thomas Pugh, of consulting firm RSM UK, said: “Given the unexpected dip in house prices in August, it is reassuring to see strong growth in mortgage approvals in July. We think the dip in prices in August is a blip and that house prices and activity will continue to recover this year as households’ incomes rise and interest rate fall, boosting affordability.
“Indeed, as lenders are pricing in more rate cuts by the Bank of England, the best-buy five-year fix rates have slipped below 4 per cent for the first time since the start of the year. The jump in net mortgage approvals strongly suggests that housing activity will continue to trend upwards over the rest of this year.
“Falling interest rates and strong growth in real disposable incomes will boost activity and prices, we’re expecting price rises of between 4 per cent and 5 per cent by the end of the year.”
Alice Haine, analyst at wealth manager Bestinvest by Evelyn Partners, said: “The UK’s residential property market appears to be in recovery mode following the turbulence of 2023 when high borrowing costs and low supply stifled activity and dampened prices.
“With more sub-4 per cent mortgage rates now available and the prospect of more interest rate cuts this year, buyers are flooding back into the market as improving affordability levels raise the likelihood that people can net their desired home.
“Meanwhile, sellers, who have been sitting on the sidelines waiting for better market conditions, now feel confident to list their homes, though those hoping for a good deal may find the glut of new properties for sale along with mortgage rates that are still relatively high could keep a lid on prices for now.”
Verona Frankish, of online agency Yopa, said: “This is the first look at house price performance since interest rates were cut at the start of August and despite the very marginal monthly decline, it’s clear that the first reduction in four years has helped to further boost the market momentum, with yet another strong rate of annual house price growth being seen.
“Whilst the base rate remains considerably higher than many buyers and sellers may be accustomed to, the expectation is that another cut will come before the year is out, which should only help to strengthen buyer appetites further.”
Nathan Emerson, of Propertymark, the property professionals body, said: “It is extremely positive that consumers are continuing to approach the housing market with confidence and that current interest rates have not deterred people from making their next housing move.
“It’s important to stress that wider economic conditions are still on the pathway to full recovery, but we are certainly witnessing greater confidence when compared to twelve months ago.
“When conditions permit, it would be welcome news to see the Bank of England further lower interest rates, but it has to be appreciated that this must happen in a controlled manner so as not to undo the progress we have seen.”
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